Debt restructuring

A debt restructuring is a process by which a firm unable to pay its debts in a timely manner makes alternative payment arrangements with its creditors. This process may allow the company to continue in operation, rather than entering bankruptcy proceedings and liquidating. A debt restructuring may involve any of the following:

  • Delaying debt payments
  • Forgiving some portion of the debt
  • Swapping some or all of the debt for shares of the firm’s common or preferred stock

A financially healthy firm can also engage in a debt restructuring by calling its debt prior to the normal maturity date, usually in order to take advantage of lower market interest rates with a replacement debt issuance.