What is financial restructuring?

A restructuring always has an operational component and a financial component. The financial restructuring involves the financing of the company, and usually requires coordination with external parties such as the bank, suppliers and investors.

When restructuring, the first thing to do is to properly diagnose the causes of the problems. A deep understanding of all the factors that have led to the current situation are at the heart of arriving at restructuring options. In doing so, it is important to look at the integral story so that cause and symptoms can be properly separated.

Part of the approach is a thorough financial baseline measurement. Clear insight into current cash flows, liabilities, receivables and assets, among other things, are essential to determine the restructuring route. How much time is left before bankruptcy must be filed? Is it possible to make changes within that time frame?

When the root causes of the problems in the company are clear, it is important to understand the possibilities that the organization has. For example, are certain parts healthy? Are these parts dependent on the unhealthy business units? Are the right people in the right place? Are there market conditions to which the company could respond in the short term? In short, insight into the strengths and potentials of the organization are a second component for making a restructuring plan.

Our diagnosis and analysis of opportunities together form the basis for defining possible improvement scenarios to be discussed in consultation with management and shareholders. The list of questions and potential improvement possibilities are customized. By thoroughly exploring the possibilities, testing them and making choices, the basis of the improvement plan is formed in cooperation.

The analysis is followed by the implementation of the roadmap to create a renewed basis for healthy business operations. This roadmap is unique to each situation, but always contains at least 2 main components. These relate to:n

The operational restructuring/remediation
The financial restructuring/reorganization

In the implementation of the restructuring, FBM Corporate Finance takes care of the financial remediation in cooperation with the management. This usually involves the following issues:n

Bank: establishing and maintaining contact with (special management of) the bank
Financing: Reviewing financing and exploring alternative financing options
Relaunch: Preparing and supervising a relaunch and all associated formal steps
Suppliers: Making arrangements with suppliers and adjusting payment terms where possible
Accounts receivable management: expediting or bringing forward payments, billing and payment deadlines t
Financial enginering: exploring financial structures that increase liquidity (such as sale & lease back)

How does restructuring work?

When an organization has not responded to change in a timely manner, firm intervention may be necessary. Common reasons include a production capacity that no longer matches demand, business operations that have lagged behind market changes or outdated propositions that are no longer in demand. But each case remains unique.

In this paper, we share some indicators that a company needs to be restructured to regain the prospect of a healthy future. We then discuss the phases of a typical restructuring process.