Corporate Debt Restructuring
CDR is a reorganization of a company's outstanding obligations, often achieved by reducing the burden of the debts on the company by decreasing the rates paid and increasing the time the company has to pay the obligation back. This allows a company to increase its ability to meet the obligations. Also, some of the debt may be forgiven by creditors in exchange for an equity position in the company.
The need for a Corporate Debt Restructuring often arises when a company is going through financial hardship and is having difficulty in meeting its obligations. If the troubles are enough to pose a high risk of the company going bankrupt, it can negotiate with its creditors to reduce these burdens and increase its chances of avoiding bankruptcy.
CDR facilitates Corporate identities that are in financial crisis but are outside the preview of BIFR (BOARD OF INDRUSTRIAL & FINANCIAL RECONSTRUCTION), DRT(DEBT RECOVERY TRIBUNAL) & other legal proceedings to renegotiate overdue debts in order to improve their financial standings and harmonize its operations. The framework aims at a coordinated restructuring to minimize the losses to the creditors & other stakeholders.
The CDR usually includes an agreement to repay at a certain interest rate within a set number of months or years.CDR is used in times of crisis to make payments easier, but it does not involve the facility of non-payment of the concerned loans.
The request by the company may include extension or lengthening of the original loan plan involving –
1. Reduction of current payments to manageable levels
2. Skipping number of payments & paying at the end of the loan
3. Consolidating number of different loans into one large Debt package with a single payment.
The services provided by ARK include –
1. Preparation of Project Proposals considering the following important aspects-
• Capacity utilization of the client
• Price of Product offered
• Profit Margin
• Demand
• Availability of raw material
• Input -Output ratio
• Likely Impact of Imports
• International Cost competitiveness
2. Deciding acceptable viability benchmarks based on following parameters on case by case basis, based on merits of each case-
• ROCE-Return on Capital Employed
• DSCR-Debt Service Coverage Ratio
• Gap between IRR(International Rate of Return) & COF(Cost of Fund)
• Extent of Sacrifice
CDR scheme will only apply to accounts involving more than one Financial Institution or Bank. It covers –
• Multiple Bank Account
• Syndication
• Consortium Account of Corporate borrowers with outstanding fund- based & non-fund based exposure of `10CR & above by Banks & Institutions.
Due to an unstable business environment in our country the request for Restructuring is on the rise .More and more Corporates as well as MSME's are feeling the need for Restructuring to run their ventures successfully.ARK boasts of team of experts with rich experience in this segment who dedicatedly offer their services to the desired clients with the sole aim to bring maximum negotiated benefit to them so that business runs smoothly after the approval of the CDR .
Under the head of Restructuring, ARK also offers the service of Corporate Recapitalization & Restructuring. Recapitalization refers to reorganization of the Corporate Capital Structure by imbibing substantial modifications in it.
There can be many reasons behind Recapitalization such as –
• Defending against hostile takeover
• Minimizing taxes
• Implementing an Exit strategy in case of a Venture Capitalist
• Reorganizing the legal/ ownership/ operational or other structures of the company for the purpose of making it more profitable
• To make the organization better organized for its present needs
• To accommodate the change in the ownership or ownership structure or Demerger
• To handle the crisis or major changes in the business
It is extremely important to understand the reason behind such recapitalization and see how the same can be executed. There may be a requirement of Restructuring of the financial assets of the firm/company in order to increase the value of the firm/ company and create a beneficial financial environment .
After a detailed analysis of the company, the further steps of the process of recapitalization are accordingly framed in order to ensure that the aim of bringing stability in the company's Capital structure is achieved. The main step in this process is converting one form of finance for e.g. Preference shares with another for e.g. Bonds.
ARK plays an important role in this field in order to help its client carry out the recapitalization process smoothly. ARK's services include-
• Analyzing whether the company actually needs Recapitalization & Restructuring or not
• Whether Recapitalization has to be done to diversify the company's Debt-Equity Ratio
• Deciding the steps that need to be taken in this respect
• Decisions on whether to issue Stocks in order to buy back the Debt Structure or conversion of Preference shares into Bonds/ Debentures in order to achieve the improved level of Debt- Equity ratio.
The professionals at ARK ensure that the company in such a situation is able to get the Restructuring done successfully with available resources. If the company has excessive Debts in comparison with their own Funds, ARK tries to make a negotiation with the company's Vendors/ Creditors for creating a repayment plan on a mutual consent basis.
By limiting the Asset Liquidation and Accounts Receivable funding, ARK ensures that the Capital Security is maintained which can be further used for the expansion and growth of the company. We also draft various business plans that give a detailed view of the financial direction of the company and the steps required to achieve the goals.