Corporate debt restructuring (CDR) is the process of reorganising the outstanding loans of a financially stressed company to avoid defaults and maintain the company’s sustainability.
In this process, certain loan terms are modified to offer a repayment plan that is convenient to pay while keeping the company stable:
- Extending Repayment Tenor: Bankers and creditors can increase the repayment tenor to lower the monthly EMIs.
- Interest Rates: In some cases, interest rates can be revised for smoothness and to increase the company’s cash flows.
- Converting in Term Loan: In cases, CC limits and other facilities are converted to term loans to reduce the overall loan exposure.
- Reducing the Loan Exposure: In some cases, the borrower asked to reduce the loan amount to some extent, and the balance amount can be rescheduled to offer a much better repayment plan.
- Converting Debt into Equity: In very particular cases, creditors can convert the debt into equity to lower the burden of repayment.
- Offering Moratorium: Banks may offer moratorium periods to give breathing time to the companies and accumulate some cash flows.
- Offering Additional Funds: The bank and creditor may grant some additional funds to meet the working capital requirement of the company, which helps in increasing the cash flows.
- Funding the Overdue Interest: The Bank and creditor can sanction a “FITL” facility known as a Funded Interest Term Loan to fund the overdue interest and avoid default on the loan, reducing the current financial burden of the borrowers.
What is the main objective of CDR?
The main objective of the CDR is to help companies regain their financial strength that are facing financial stress and are prone to default on their repayment commitment. This can be done by changing a few terms of existing loans, like increasing tenor, providing moratorium, and infusing additional working capital.
Who Are Eligible
- Companies that are finding difficulties in paying the bank loans on time due to some kind of financial stress, of market fluctuations or delays in payments.
- Businesses that are facing turning times in their business due to changes in the product or their line of activity.
- Companies that are facing regular delays in payments and now revising their customers.
- Companies that want to expand their business in other states or overseas can demand changes few loan facilities.
Advantages of CDR to the Companies & Banks
Companies have a number of advantages from the CDR:
- Avoiding Default: Through the CDR process, a company can avoid an upcoming default on its loan accounts.
- Maintaining Stability: Companies can maintain stability during the bad phase of the business and slowly come out of financial stress.
- Increase the Cash Flow: Through CDR, companies can be able to increase their cash flows with the support of increased loan tenure, moratorium periods, and reduced interest rates.
- Enjoy Banking Facilities: Companies can avail of banking products and can apply for more loans in the future if they come out stressful situation with the help of CDR. This cannot be possible if the account slips into NPA.
Advantages for Banks:
- By the CDR process, banks can keep their balance sheet clean from raising the NPA ratios, which is crucial for their growth.
- Support to Clients: This is very helpful support to their clients at the time of their financial hardships.
Alternative Solutions to CDR
The company can transfer its whole loan exposure/liability to a new financial institution. These institutions work as a bridge financier between the stressful situation to standard banking. This new financing offers the same benefits as normal CDR gives much better comforts, like:
- New Repayment Plan
- Availability of additional funds for business
- Moratorium period
- Repayment, like a balloon payment, is provided
- In the future, one can easily move to standard banking
Fund Source India is a company known for offering such alternative solutions in difficult situations.
Just apply through the form & their team will contact you.
Conclusion
Corporate Debt Restructuring (CDR) is a lifeline for businesses that are facing financial stress and on the verge of default. This helps them in coming out of the financial hardships and regain their strength. In return, CDR also helps banks to keep their books healthy and maintain their profits.
