Definition of Debt restructuring:
Debt restructuring is a process used by companies to avoid the risk of default on existing debt or lower available interest rates. Individuals on the brink of insolvency also restructure their debt as do countries that are heading for a default on sovereign debt.
Some companies seek to restructure their debt when they are facing bankruptcy. A company might restructure several loans so that some are subordinate in priority to other loans. Senior debtholders are paid before the lenders of subordinated debts if the company files for bankruptcy. Creditors are sometimes willing to alter debt terms to avoid potential bankruptcy or default.
Court ordered or mutual agreement, between a financially troubled firm and its creditors, to reorganize its liabilities as a more feasible alternative to foreclosure or liquidation. Debt restructuring may involve debt forgiveness, debt rescheduling, and/or conversion of a portion of debt into equity.
How to use Debt restructuring in a sentence?
- A debt restructure might include a debt-for-equity swap, in which creditors agree to cancel a portion or all of the outstanding debt in exchange for equity.
- The debt restructuring process can reduce the interest rates on loans or extend the due dates for a company’s liabilities.
- A nation seeking to restructure its debt might move its debt from the private sector to public sector institutions.
Meaning of Debt restructuring & Debt restructuring Definition