April 9, 2020
Apart from the high infection and mortality rate that the coronavirus pandemic has left on its wake, several economies and businesses are also feeling the pains. The outbreak is triggering “an economic crisis whose violence is set to exceed anything we have previously witnessed.”1 Aside the disruptive energy crisis it has also caused, the consequent social distancing and work-from-home directives have led to a virtual collapse of all economic activity across the globe, with the world now in yet another recession.2
Businesses are seeing their revenue streams thin out. The primary concerns for most companies at this point are their cash flow and liquidity, and how to weather the storm, which are now leading corporations to save cash, cut costs, suspend capital investments and, if things get out of hand, – as they sometimes inevitably do – lay off staffs. All over, there is a certain air of inevitability that a lot of businesses will slip into bankruptcy and that even others that are able to scale through (at least in the short term) may do so only by deferring or defaulting on payments.
These unsettling economic effects of the pandemic are already giving businesses serious concern, particularly those relying on credit financing with regards to their ability to meet their debt obligations. Financial institutions are also becoming worried about their own potential to make good their advancements and ensure that non-performing loans stay within manageable thresholds.
Against this backdrop, lenders and borrowers alike will do well to become proactive about protecting and preserving their respective positions in light of the economic downturn and in a bid to ensure liquidity and provide cash flow for companies even if only as far as staying afloat or clearing a path toward viable future operations. One of those options available to both parties and which promises the most convenient and beneficial returns in light of the current economic climate is debt restructuring.
What is Debt Restructuring?
Debt restructuring is a process that allows a company or a sovereign entity facing cash flow problems and financial distress to renegotiate and reduce its delinquent/distressed debts in order to improve or restore liquidity so that it can continue its operations.
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