What is Restructuring and Types of Restructuring

Anbarasan Appavu
The term "restructuring" refers to the action that a company takes in order to make significant changes to the company's financial and operational aspects, and this action is typically taken when the company is facing financial pressures. In the context of business, "restructuring" refers to a type of corporate action that involves making significant changes to a company's debt, operations, or structure with the goal of mitigating financial damage and enhancing the operation of the company.
What is Restructuring
When a company is having trouble making the payments on its debt, it will frequently consolidate its debt and adjust the terms of the debt through a process known as debt restructuring. This creates a way for the company to pay off its bondholders. A company can also restructure its operations or structure by decreasing its size through the sale of assets or cutting costs, such as payroll. Another way to restructure a company's operations or structure is to change its organizational structure.

• A business is said to be restructuring when it undergoes significant alterations to its financial or operational structure, typically when it is experiencing significant financial strain.

• When preparing for a sale, buyout, merger, change in overall goals, or transfer of ownership, companies may also restructure. • Following a restructuring, the company should be left with smoother and more economically sound business operations.

Understanding The Restructuring

Companies might decide to restructure for a variety of reasons, some of which include deteriorating financial fundamentals, poor earnings performance, lackluster revenue from sales, excessive debt, and the possibility that the company is no longer competitive or that there is already too much competition in the industry.

It is possible for a business to restructure in order to get ready for a sale, a buyout, a merger, a change in their overall goals, or a transfer to a family member. For instance, a company may decide to restructure after it is unable to successfully launch a new product or service, which places the company in a position where it is unable to generate sufficient revenue to cover its payroll and its debt payments. In this scenario, the company is forced to consider its options.

As a consequence of this, the company may continue to operate while selling its assets, reorganizing its financial arrangements, issuing equity to reduce debt, or filing for bankruptcy depending on whether or not the shareholders and creditors agree to do so.

Restructuring Process

During an internal restructure, a company may make adjustments to its operations, procedures, departments, or ownership. These adjustments may make it possible for the company to become more integrated and profitable. When negotiating reorganization plans, it is common practice to enlist the assistance of financial and legal consultants. It is possible that certain aspects of the business will be offered for sale to investors, and a new chief executive officer (CEO) could also be recruited to assist in the transition.

As a consequence of this, changes may need to be made to processes, computer systems, networks, locations, and even legal issues. Due to the possibility of job duplication, some employees' positions being eliminated and others being laid off.

In the event that a company finds itself in the midst of a financial crisis, it may decide to undergo a restructuring in order to modify the financial or operational aspects of its business.

When a company's internal and external structures are adjusted and jobs are cut, the process of restructuring can be a tumultuous and painful one for everyone involved. However, once it is finished, the reorganization should result in business operations that are less disruptive and more economically sound.

The company may be in a better position to achieve its goals through greater efficiency in production once the employees have adjusted to the new environment; however, not all corporate restructurings end up being successful. Before officially dissolving operations, it is not uncommon for a business to first have to concede defeat and start selling off its assets in order to satisfy its debt obligations.

Special Considerations

The costs associated with restructuring a company can quickly add up, especially when it involves cutting back on or getting rid of product or service lines, terminating contracts, getting rid of divisions, writing off assets, shutting down facilities, and relocating employees.

The addition of new products or services, entering a new market, providing additional employee training, and purchasing property all result in additional costs. Whether a company increases or decreases the scope of its operations, the debt that it carries typically takes on new forms and grows in amount.

Real-World Example of Restructuring

Late in the month of March 2019, Savers Inc., the largest chain of thrift stores in the United States that is operated for a profit, came to an agreement to restructure the company. As part of this agreement, its debt load was reduced by forty percent, and Ares Management Corp. and Crescent Capital Group LP acquired the company.

The out-of-court restructuring, which was approved by the board of directors of the company, includes refinancing a first-lien loan with a principal amount of $700 million and reducing the interest costs incurred by the retailer. As part of the agreement, the company's current term loan holders will receive full payment, while senior note holders will have the option to exchange their debt for equity in the company.

The Different Types of Restructuring

Reorganizing a company can be done in a variety of different ways. Restructuring can take many forms, including legal restructuring, turnaround restructuring, cost restructuring, divestment, spin-off, repositioning restructuring, mergers and acquisitions, and spin-offs.

Does Restructuring Always Involve Job Losses?

When a company decides to reorganize its operations, it will frequently have to let go of some of its workers. This is typically the case due to the fact that a reorganization typically involves some form of downsizing, which may involve the dissolution of some groups, the consolidation of others, and an overall effort to become more efficient and reduce costs.

How Many Times Does a Company Have the Capability to Restructure?

There is no legal cap on the number of times a business can reorganize its operations. A company has the ability to make whatever decisions it sees fit regarding its operations in order to become more cost-effective and improve operational efficiency. Having said that, restructuring is a difficult process that requires a significant investment of both time and effort, and as a result, it is not a procedure that should be treated flippantly or performed frequently.


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