Debt restructuring is a process that allows a private or public company, or a sovereign entity facing cash flow problems and financial distress to reduce and renegotiate its delinquent debts to improve or restore liquidity so that it can continue its operations.
It is used by companies primarily to avoid the risk of default on existing debt or to take advantage of lower available interest rates. Debt restructuring can be carried out by individuals on the brink of insolvency as well, and by countries that are heading for default on sovereign debt.
• The debt restructuring process can be carried out by reducing the interest rates on loans or by extending the dates when a company’s liabilities are due.
• A debt restructure might include a debt-for-equity swap, when creditors agree to cancel a portion or all of the outstanding debt in exchange for equity in the company.