Debt Restructuring: What It Is and How It Works

Similarly, Conservation International have engaged in numerous DNS deals with Costa Rico and Mexico whereby $16million in debts has been purchased for $6.5million to save and manage native forests. Debt restructuring usually involves direct negotiations between a company and its creditors. The restructuring can be initiated by the company or, in some cases, be enforced by its creditors. A default happens when a borrower fails to make required payments on a debt, whether of interest or principal.

Debt Restructuring

Sovereign bondholders may also have to take a haircut by agreeing to accept a reduced percentage of what they are owed, perhaps 25% of their bonds’ full value. The maturity dates on bonds can also be extended, giving the government issuer more time to secure the funds it needs to repay its bondholders. Asked whether EximBank was also representing Chinese commercial creditors, Musokotwane said EximBank is “the lead negotiator for the Chinese interests”. Zambia’s Chinese creditors include commercial banks such as Industrial & Commercial Bank of China (601398.SS), Jiangxi Bank (1916.HK) and China Minsheng Bank (600016.SS). At the end of 2021, Chinese creditors accounted for almost $6 billion of Zambia’s external debt, which was then $17.27 billion.

How to Achieve Debt Restructuring

Bilateral creditors are government lenders including the United States and most OECD countries along with emerging lenders like China. •Debt-for-equity swaps are often used by creditors to recover all or a portion of what they are owed. The passage of the revised Labor Standard Act in February 1998 enhanced labor market flexibility and facilitated corporate sector restructuring. Before the crisis, Korean labor laws made it virtually impossible to lay off workers and very difficult to transfer them between firms. Studies 102 distressed bank debt restructurings and finds that banks take equity positions in 31% of the transactions. Moreover, the banks typically maintain a substantial equity stake for at least two years following the restructuring.

It was analogous to the popular debt-for-equity swap in that the debt was able to be “swapped” for some other form of payment. In the case of DNS, it allowed debt-burdened governments to buy debt at a discount to its face value and swap these for environmental investments such as forests and so on. Find that vulture investors become blockholders (owning more than 5% of the reorganized firm’s stock) for half of the sample firms and gain control of 16% of the firms. Some investors have developed a reputation for using this strategy to gain control of firms in bankruptcy, and as a result, they manage a portfolio of reorganized firms . Chapter 12 Bankruptcy is a form of debt restructuring in the United States available to farms and fisheries exclusively; said businesses could be family-owned or owned by corporations. The special debt restructuring rights accorded to farmers and fisheries consequent line 12 of the United States Bankruptcy Code were first granted by Congress in 1986 amid an agricultural debt crisis.

The global community mounted two key initiatives in response to the COVID-19 crisis, to limit the risk of defaults and allow country governments fiscal space to spend on both the health and socioeconomic dimensions of pandemic response. Although it may save the company from bankruptcy in the short term, there is no assurance that it will run smoothly after debt restructuring. LendingTree is compensated by companies on this site and this compensation may impact how and where offers appears on this site . LendingTree does not include all lenders, savings products, or loan options available in the marketplace.


It includes not just the central government, but also state-owned or state-backed entities whose debts are guaranteed by the government. 債務重組 restructuring can be a crucial lifeline if you’re struggling to pay your bills. It occurs when a creditor changes the terms of your loan agreement, thereby making your debt more affordable. Loan restructuring can take different forms, from permanently modifying your loan with a longer repayment term to lowering your interest rate or current balance. As an alternative to the local country government bond rate, the US Treasury bond rate often is used to estimate the risk-free rate if the target firm’s cash flows are in terms of local currency. To create a local nominal interest rate, the Treasury bond rate should be adjusted for the difference in the anticipated inflation rates in the two countries using Eq.

•Leads to overleveraging of society by consuming so much more than the country produces and importing the difference by paying through debt. Sovereign leveraging was invented 25 centuries ago by Pericles, as an instrument to assure his re-election year-after-year by the demos of ancient Athens. What he spent was public money and when the wealth of the city-state of Athens could not afford anymore his handouts, Pericles paid for them with the wealth of the Alliance carefully kept in the Parthenon. It reveals how such a deal may be constructed and also highlights some of the uses of funds in a DNS arrangement including conservation, staff training, management of designated areas, and environmental education programs. Most defendants who cannot pay the enforcement officer in full at once enter into negotiations with the officer to pay by installments. This process is informal but cheaper and quicker than an application to the court.

How Debt Restructuring Works

Without these assurances, the IMF’s executive board would delay the programme’s approval and in consequence, money disbursements. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. EY-Parthenon professionals recognize that CEOs and business leaders are tasked with achieving maximum value for their organizations’ stakeholders in this transformative age. We challenge assumptions to design and deliver strategies that help improve profitability and long-term value. Act as your Financial Advisor to negotiate with stakeholders, build consensus and obtain agreement to the proposals and then execute the transaction. In these situations, we assist EY clients by thinking creatively about their options and interacting with all relevant stakeholders to build consensus around a restructuring solution that seeks to help maximize value for all stakeholders.

A lot of private-sector workers, among them teachers and nurses, complained of not being paid regularly by the sovereign . On the other hand, the government had established an Employment Insurance Fund and set aside 8 trillion won for measures to alleviate the unemployment problem which might ensue after massive layoffs. Some of these measures included a system to bring together job-seekers and prospective employers, vocational training, a labor dispatch system, and reduced work-hours, among others. Once unemployment benefits are adequate to meet the recent increase in demand, labor-management conflicts are likely to ease. Various schemes are being introduced to allow more flexibility in the labor market through early retirement programs and an annual salary system. Furthermore, industry rivals may be distressed and lack the financial strength to bid for the bankrupt firm.

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