Debt restructuring: A certainty in uncertainty?

March 28, 2024 | Blog

Debt restructuring: A certainty in uncertainty?

Debt restructuring. Type it into any search engine and you’ll find no shortage of stories about companies and countries involved in some stage of the process. But what is it and why is it being talked about so much? And if you’re considering it, what tools and technologies are available to help you through the process?

The challenge of staying afloat
Debt restructuring is a financial process where a borrower and lender agree to modify the terms of an existing debt obligation. The goal is to help the borrower manage its debt more effectively and avoid default, while also protecting the lender’s interests. So, restructuring is often used by companies facing financial challenges to help infuse liquidity into the business to keep it afloat.

There is an estimated $2 trillion in corporate debt globally coming due in the next two years, and many businesses are facing uncertainty due to current market conditions: high interest rates, sluggish economic growth, increased or changing regulation, rising inflation, and geo-political issues, to name a few. Moreover, many businesses borrowed heavily when interest rates were low, so they could be facing unsustainable payments on top of decreasing revenue.

The trends and opportunities
All these issues add to heightened market volatility and increased caution. Therefore, the demand for debt restructuring tends to increase as businesses try to manage their debt obligations more effectively.

Techniques can involve extending the repayment period, reducing the interest rate, forgiving a portion of the principal, or converting debt into equity. However, some other trends and opportunities are emerging.

These include bridge-to-sale transactions, where a company transfers assets to a SPV (special purpose vehicle) and raises additional debt secured against those assets on a structurally senior basis; sale-and-leasebacks, where a company sells its commercial property to a third party who simultaneously leases it back to the company; and uptiering or priming transactions, where a company works with a sub-set of lenders to reorganize its capital structure and raise new liquidity that is senior to the existing debt. 

The benefits of using a data room
Whatever the route chosen, the process is likely to be complex and will need to be completed quickly. The right data room can enhance the efficiency, security, transparency, and compliance of the debt restructuring process, benefitting both borrowers and lenders involved in the transaction:

  • Security: Data rooms provide a secure and controlled environment for storing sensitive financial information, ensuring that only authorized parties have access to confidential documents related to the restructuring process.
  • Efficiency: By centralizing all relevant documents and information in one location, data rooms streamline the due diligence process, making it easier for both borrowers and lenders to review and assess the necessary information.
  • Transparency: Data rooms promote transparency by enabling all involved parties to access the same set of documents and information, reducing the risk of misunderstandings or disputes during the restructuring negotiations.
  • Compliance: Data rooms facilitate auditing and compliance efforts by providing a detailed record of all document activity and user interactions, helping to ensure that the restructuring process adheres to regulatory requirements and industry standards.

Datasite can support the entire process from start to finish, on one easy-to-use platform, no matter the sector, event, or complexity, allowing the different stakeholders to plan, organize, and act with confidence to achieve an optimal outcome for all parties:

  • Stay organized while juggling multiple distractions, with the help of our 24/7/365 in-house support
  • Keep the focus on strategy and save time with automated redaction and search tools
  • Expedite creditor conversations, and preserve a record against future litigation, by tracking Q&A in the app.
  • Triple the bidder list for 363 sale processes, quickly, using the buyer outreach application in the platform, and track every email

See how the Datasite platform can help you with debt restructuring or request a demo today.