Finance glossary

What is industrial debt restructuring?

Qu’est-ce que la restructuration de dettes dans le domaine industriel ?

Debt restructuring can be a solution if you are unable to repay your debts, if you are short of cash or if you wish to anticipate to improve your financial result. The debt of companies in France is evolving and particularly with the Covid crisis, this has increased. It is essential for an industrial company to know how to deal with it. In this article, we will look at the definition of debt restructuring, why or when it should be implemented in your company and which points to bear in mind when negotiating.

I. What is debt restructuring?

Debt restructuring is a legal and financial technique that allows industrial companies to renegotiate and reorganise their debt, in particular to reduce their repayments and interest charges. This can take different forms such as a change in interest rates, an extension of repayment periods or a renegotiation of repayment schedules with creditors. This solution may be necessary if the company cannot repay its debts (the so-called “debt wall”), as agreed with the creditors. Indeed, the company may have suffered from various problems such as a decrease in the number of orders, a financial management problem or increased competition.

Debt restructuring can thus help the company to regain stability and to continue or resume its development.

However, this solution should be taken with caution as it can generate significant financial costs for industrialists (intervention fees, increase in rates, etc.). The creditors, for their part, may have to accept a renegotiation of the nominal value of their debts, for example.

2. Why do you need to restructure your debt and how do you do it?

In the first instance, the industrial company may consider restructuring its debts because it does not have enough cash.

It is thus possible to set up negotiations to extend the duration of debt repayments in order to reduce the amount of annual payments.

In addition, it is possible to mobilise certain assets, in particular with the sale and leaseback solution, by selling the fixed assets (machines, stocks, buildings, etc.) via an agent such as Chetwode. The company will thus be able to obtain more liquidity while using the asset and retaining a purchase option. Of course, it is advisable to anticipate the maturity of the debt in question in order to negotiate under good conditions.

In a second case, the company can implement a debt restructuring even if it has no financial problems. For example, it can take advantage of periods of low interest rates to improve the structure and conditions of its debt and thus its financial result. Or the company can group its loans together to make management easier. It can also favour the creation of a banking syndicate that centralises and replaces different contracts with a single contract. This can lead to early repayment, the possible penalties for which will have to be negotiated.

3. What criteria should be taken into account in the negotiation?

  • The minimum level of cash flow to be ensured for the investments with the bank, the financial conditions attached to the renegotiation (penalties, early repayment and/or set-up fees, rate, duration etc)
  • The agreements provided for in the agreement in terms of ratios (repayment capacity, fees, etc.)
  • Possible contributions from partners and shareholders with or without a lock-up agreement
  • Terms and conditions in case of non-compliance
  • Execution or non-execution protocols (carve-out, waivers, etc.) before making an investment

In conclusion, if your industrial company needs to restructure its debts, we can help you with sale and leaseback solutions. Indeed, support may be appropriate for your company because this operation can generate significant financial costs if it is not well implemented. To find out more, you can consult all our solutions here.

The industrial finance press review

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