debt restructuring

Debt Restructuring

A method used by companies with outstanding debt obligations to alter the terms of the debt agreements in order to achieve some advantage.

Notes:

Companies use debt restructuring to avoid default on existing debt or to take advantage of a lower interest rate.

A company will often issue callable bonds to allow them to readily restructure debt in the future. The existing debt is called and then replaced with new debt at a lower interest rate.

Companies can also restructure their debt by altering the terms and provisions of the existing debt issue.

See also: Callable Bond, Debt, Extraordinary Redemption, Forced Conversion, Make Whole Call, Refinance

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debt restructuring

An exchange of one or more new debt issues for outstanding debt issues that can occur when the new issues have interest rates and/or maturities that differ from those of the outstanding issues. For example, a firm might offer holders of 9% coupon bonds with 5 years to maturity a new bond with a higher-coupon rate and a 25-year maturity. Creditors having difficulty making interest and/or principal payments often restructure their debt to reduce the size of the interest payments and to extend debt maturity. Also called troubled debt restructuring. Compare restructuring.