DIFFICULT TIMES REQUIRE DIFFERENT STRATEGIES
If you are mulling over traditional restructuring and maybe ultimately Bankruptcy down the line, then you may need to think again. In the troubled waters of the present economy With the prospect of rising interest rates and escalating costs (inflation) coming to the forefront before the end of this year, it is imperative that any excessive debt burden/debt servicing is addressed and without delay:
Debt Reduction v. Debt Restructuring*
A traditional restructuring, or rescheduling, of Debt will provide some temporary relief and is preferable to ‘burning your boats’ with a bankruptcy filing. However, the excessive debt will still remain on your balance sheet and this will become a ‘ball and chain’ that may hold back your recovery for many years in any normal market. However, this is not a normal market. In my many years of experience in the ‘turnaround’ industry, debt restructuring without debt reduction, for a troubled company, is ‘playing with fire’ and will invariably lead to the Bankruptcy Court. This is especially the case in the present economic crisis.
Compromising the Option of Debt Reduction
If you enter into Debt Restructuring negotiations with a bank, or any other creditor, you may well find that you compromise your ability to negotiate for Debt Reduction later on, i.e. things may be said that shouldn’t be said and things may not be said that should be said. This consideration could be critical to the future of your company.
Corporate Survival
Right now we may be talking about the very survival of your company and its employees. So, if the ‘patient’ – the company - is ‘sick’, it will need ‘heart surgery’ or it will not survive! This economy leaves no time to ‘tinker’ with the problem with a debt restructuring plan, i.e. a two step program. For many companies, there is a window of opportunity now to reduce debt that may never come again.
Your Obligations? - The Best Route »
While there is no principled businessman who wouldn’t want to meet 100% of his obligations, the reality is that outside circumstances/the marketplace may well prevent that. Clearly by far the preferred option from a creditor’s perspective is that they receive, say, 50c in the $, rather than little or nothing after the company has quite probably debt serviced itself ‘into the ground’, with a debt restructuring program*, and then filed for Bankruptcy. We have seen this scenario played out many times in the last 20 years with the owners all saying the same thing, ‘I wish I had listened to you, but now it is too late!’
*Remember, in the case of a Bank or any other commercial lender, even if such restructuring was negotiated successfully, the bank can still usually ‘accelerate’ and call such an arrangement at any time. In the present unstable environment, we have seen many examples of banks ‘freezing’ credit lines and ‘calling’ loans of credit worthy customers without any notice. In contrast, an agreed bank ‘haircut’ for your business is a legal, recorded document and a total discharge of that portion of the debt which no one can take from you.
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