Sometimes caused by an economic crisis, changes in market dynamics and segment prices, by an extraordinary event of finance debt, or sometimes by an administration fail, many companies go through finance difficulties and have problems to honor their debts’ payment, being forced to renegotiate them in order to rebalance their cashes and comply with their long term obligations. In this case, the debts restructuring becomes an important tool to reestablish the organization’s financial health, which enables the company to “breath” and develop a strategy and a business plan, always allied to a critical analysis of causes and a timely action plan to have the debt finance issue settled.
Debt restructuring is the planned negotiation conduction with creditors, which can be finance institutions, credit unions, suppliers, service providers, governments, among others. The banks are generally critics about financial contribution to business development, and, in this case, about the debt restructuring; they are often very representative creditors and the necessary source to provide credit to reestablish the cash flow, in exchange for a compensation compatible with the operations’ risks and guarantees. Once it is inevitable to deal with them, it becomes a lot easier to achieve good negotiations when starting from the understanding about the credit analysis’ mechanisms of the bank and the comprehension about the debts impacts, which is in renegotiation, on the creditor bank’s internal indicators and goals.
For the risk analysis, the banks use a mechanism called “rating” which classifies every credit operation given to each company in different levels. The classification is realized by quantity and quality criteria, considering financial statements, debtor and guarantee debtor capacity of payment and indebtedness, fiduciary grantees sufficiency and liquidity, market movements, legal issues, among other variables. Rating does not only affect the operation interest rate but also it is used to determine the grating or not of the credit and the cost the bank will have with the obligatory losses provision to the Central Bank. Thus, it turns even more relevant to know the rules adopted by the bank to determine the rating and to execute a strategic plan of actions to obtain a better classification, and to conduct the negotiation assertively. Despite the rating, other negotiation factors and strategies can increase the transaction chances of success and the health cash flow recovery to the business; many times, an experienced consulting may help the company to see this ways and use more appropriate tools to each case.
Although the negative view of the indebtedness, it is fundamental to leverage the business organization development. When strategically planned, it may bring competitive advantages and accelerate the growth. On the other hand, when the debt is very high or poorly planned, any instability on the business can impact negatively on cash flow, competitiveness decreased and can bring difficulties to the company to comply with the obligations, what makes the debt restructuring necessary.
By Gabriel Duarte
