Financial restructuring

Financial restructuring is the reorganizing of a business' assets and liabilities. The process is often associated with corporate restructuring where an organization's overall structure and its processes are revamped. Although companies can restructure for any reason, in most cases it is done when there are serious problems with the business, and to avoid bankruptcy liquidation. Every functioning company controls assets, or economic resources that can be owned and are otherwise considered valuable. Most businesses also hold liabilities, which are debts or other obligations that arise as a result of past transactions. These economic factors will often have the most significant impact on the success or failure of that business, so financial restructuring is likely to focus on effectively managing assets and reducing liabilities. Debt Restructuring When a company is in crisis, it may try to renegotiate with its creditors to reduce or eliminate some of its debts. Faced with the possibility that the distressed company may default on a loan, creditors will often work to adjust the terms of repayment, including lowering interest rates and/or extending the repayment schedule. Debts may also be forgiven, in part, often in exchange for the creditor gaining some equity part ownership in the company. Equity Restructuring Companies that have little debt in comparison to their equity that is, they are are underleveraged or have a low debt-to-equity ratio may use some of their equity to buy back stock. This returns more control to the company, which will have fewer stockholders to satisfy and pay dividends to. If the company has excess cash, it can use it to repurchaseshares; alternatively, if it doesn't have extra cash available, it may sell off some assets that are not bringing in profits or borrow money for the buyback. Financial restructuring can also involve writing down assets that are overvalued. This change in value appears on a company's income statement as an expense, which lowers the company's income and, therefore, the amount of tax it owes. Because this is a "paper loss" the company isn't actually losing any money except on the income statement this method of restructuring can help reduce how much money a company owes without it needing to spend cash on repurchases.

Reasons for Restructuring

Most businesses go through a phase of financial restructuring at some point, though not necessarily to address shortfalls. In some cases, the process of restructuring takes place as a means of allocating resources for a new marketing campaign or the launch of a new product line. When this happens, the restructure is often viewed as a sign that the company is financially stable and has set goals for future growth and expansion. A company may also need to restructure its finances if it merges with or acquires another company. When two firms merge, their debt and equity are also combined, and the resultingcorporation may have a very different debt-to-equity ratio than either of the original companies. An acquisition may even be used as a form of financial restructuring, as a company with a low debt-to-equity ratio may target a business with a high ratio as a means of better balancing its finances. Operational Restructuring Along with financial restructuring, a company may need to restructure its operations to help eliminate waste. For example, two divisions or departments of a company may perform related functions and in some cases duplicate efforts. Rather than continue to use financialresources to fund the operation of both departments, their efforts are combined. This helps reduce costs without impairing the ability of the company to achieve the same ends in a timely manner. Operational restructuring, also known as corporate restructuring, may also involve downsizing, eliminating staff to reduce costs. In some cases, restructuring must take place in order for the company to continue operations. This is especially true when sales decline and the corporation no longer generates a consistent net profit. The operational restructuring process may include a review of the costs associated with each sector of the business and an analysis of ways to cut costs and increase the net profit. The process may also call for the reduction or suspension of obsolete facilities that produce goods that are not selling well and are scheduled to be phased out.

Different methods

When a company goes through a financial restructuring, the process typically leads to changes in the debt structure of that entity. The goal is often tied to achieving some financialsavings and turning operations around to preserve the future of that business. A business might be able to initiate a financial restructuring out of court, or the process might require the involvement of the legal system to satisfy creditors. Some of the proven ways to perform a financial restructuring include reorganizing the terms of debt obligations with creditors,restructuring equity and obtaining loans. Quite possibly, a corporate restructuring could lead to a bankruptcy filing, which does not have to translate into the end of a business. A bankruptcy can often serve as a means to protect a business from creditors for a period of time while a debtor attempts to increase profits. In a prepackaged bankruptcy deal, a filer can save months of time in the process. Before making a formal filing in a bankruptcy court, a debtor and creditors agree to refinancing terms in some formal arrangement before a judge even views the case. By the time the filing is made, the creditor has already saved the court the trouble of coming up with some agreeable terms with creditors because of the prepackaged deal. It might be possible to continue operations even as the bankruptcy process unfolds, as long as there are enough financial resources to do so. Bankruptcy is often designed to keep a business running even as debt terms are renegotiated. If the case is not a prepackaged bankruptcy, the judge might appoint a trustee to negotiate with creditors throughout thisfinancial restructuring. This gives the company an opportunity to return to profitability. If successful, the company might emerge from the bankruptcy after a period of time. Companies that are pursuing a financial restructuring might be able to obtain loans to help with the process. Debtor in possession (DIP) financing is a loan that is extended to businesses that are facing financial hardship. A DIP loan might be granted to a company that is already undergoing the bankruptcy process to assist with those expenses. The borrowing costs for DIP financing could be high because of the risk taken on by the lender, but it also could help prevent a company from needing to close its doors. Providers of DIP financing might have a hand in the troubled company's operations throughout the life of the financing and might expect the borrower to set and reach certain financial goals, leading to a turnaround of that business.

Financial Restructuring & Sick Business Turnaroud Management

1. Financial & Business Restructuring :Financial Restructuring offers wealth maximization to the stakeholders and accrue more

benefits for the Company. MKM plays a crucial role for planning and carrying through a complete financial restructuring plan which includes-

review of detailed Business Plan & Project Report, review of various risks associated with the Business Plan & Project, Risk Mitigation Strategy, finalisation of Bankable Financial & Commercial structure of the Business & project, Development of detailed finance plan, Negotiation of terms & conditions with the financial lenders, Meeting pre-disbursement conditions and financial Closure.

MKM provide tailor made solutions to replace/ restructure the existing high cost debtwith low interest rate We offer complete restructuring plans including. In a dynamic market scenario, dedicated focus on core business strengths is critical to the long term survival of any company. Business reconstruction services are aimed at assisting clients in consolidating their focus through the routes of acquisition, divestitures, sell offs and joint ventures. The ultimate goal being the maximisation of economic returns from assets employed/to be employed or even 'surplus' to the needs of the business. MKM offers following services to needy corporate which include:

Identification of key problems Profiling vis--vis products and markets Restructuring business from all angles Rescheduling financial obligations Assets needs for financial assistance for reviving units Source possible buyers and change of management Generation of Surplus funds through disposal of company non productive assets .

2. Advisor to Sick Company

We are also advisors for sick & weak companies. We provide following services to such companies:

Arranging funds, strategic alliances, investment participation or takeover for the revival of sick units. Continuous strategic management intervention for revival / turnaround. Preparation of rehabilitation of sick units and presentation before authorities.

3. Trunaround Management
While organisational restructuring is clearly a strategic business initiative, the focus tends to be on cost reductions and process improvements. An independent/ external professional is better equipped to understand and pinpoint business problems and ensure speedy, proper implementation of requisite steps towards business reorganisation. This is primarily due to the outside perspective of the consultant, who precisely evaluates the business, the risks and returns, the performance and the prospects based on facts and data. We offer advisory services to companies that, are struggling to remain afloat, or those who want to improve their profitability further and are in the sectors which are about to revive.

Our broad range of Turnaround Management Services include:

Financial restructuring Substitution of high-cost borrowings with low-cost borrowings Operational restructuring, cost structure studies and process improvement Advising on optimal utilisation of resources Appraisal of units to ascertain medium and long-term viability Representation and registration of sick companies with BIFR/CDR Negotiating one-time settlements Devising of restructuring plans and ensuring rehabilitation Reorganisation of bankrupt companies to make them interesting to investors Scouting for financial partners/strategic investors for possible takeover Advisory services to management on an ongoing basis