Taking on debt is a normal part of growing a business. However, due to situations like economic downturns or unexpected expenses, it can become unmanageable. To avoid bankruptcy, debt restructuring strategies like an equity swap or bondholder haircut can help you renegotiate the terms of your existing debt and keep your business’ finances stable.
It’s time to consider debt restructuring if:
You want to avoid insolvency
Insolvency is a financial state in which a person or business cannot pay its debts as they come due. This can be due to poor cash management, a significant drop in income, or rising expenses. Debt restructuring, like a bondholder haircut, can help avoid insolvency. In this case, the business may need to negotiate with bondholders to accept less than the total amount owed, which they might prefer over risking a total loss if the business announces bankruptcy.
Reducing debt this way can improve liquidity, ensuring enough cash to cover everyday expenses. As a result, the company’s financial situation can stabilize and prevent a downward spiral into bankruptcy.
You want to secure future stability for your business
Debt restructuring doesn’t always have to be a last resort. Sometimes, it can support cost-cutting, management changes or new business strategies. A debt-equity swap, for example, can convert a business’ debt into shares given to creditors. This can lower debt, reduce interest payments and improve key financial ratios, making the business more attractive to investors and lenders.
Successfully executing an equity swap also shows the market that the business is taking proactive steps to fix its financial issues. This can boost investor confidence and potentially increase the business’ stock price.
The best time to form a strategy is today
Managing debt can be overwhelming, but know that bankruptcy isn’t your only option. There are effective strategies to manage and restructure your debt. Consult with experienced professionals who can guide you through the process and help you make the best decisions for your business.