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.