How do you prepare for a restructuring negotiation with creditors?

Restructuring is a process of renegotiating the terms and conditions of a company's debt obligations with its creditors, usually to avoid bankruptcy or liquidation. It can be a challenging and complex task that requires careful preparation, communication, and compromise. In this article, you will learn how to prepare for a restructuring negotiation with creditors, and what strategies and tactics you can use to achieve a favorable outcome.

1 Assess your situation

Before you enter a restructuring negotiation, you need to have a clear and realistic understanding of your company's financial situation, operational performance, and future prospects. You should conduct a thorough analysis of your cash flow, assets, liabilities, revenue, expenses, and profitability, and identify the main drivers and risks of your business. You should also evaluate your debt structure, maturity profile, interest rates, covenants, and collateral, and determine how much debt you can realistically service and repay. This will help you to define your restructuring goals and priorities, and to communicate them effectively to your creditors.

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Many Emamzadeh

Co-Founder @ Stealth Co | Stealth Mode Working on an amazing project that will profitably help millions
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Most important: transparency with your creditors (by class), equal treatment, and a realistic plan to solve the problem compared to a fair liquidation analysis. and compare that to your plan. If the NPV of your plan is substantially higher than what they would get in a liquidation (less costs incurred by the creditors), they should go along. Once they sense any dishonesty (including lies of omission), they won't care about NPV because they cannot trust you so the discount rate used goes so high that you can never convince them. After the plan is approved, have constant communication and always lead with bad news. I've done this numerous times, even receiving new money as part of the plan from the same creditors.

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2 Identify your creditors

Another important step in preparing for a restructuring negotiation is to identify and categorize your creditors, and to understand their interests, expectations, and positions. You should map out the different types and classes of creditors you have, such as secured lenders, unsecured bondholders, trade creditors, shareholders, and others, and how much you owe them and on what terms. You should also research their backgrounds, relationships, reputations, and preferences, and try to anticipate their reactions and responses to your restructuring proposal. This will help you to tailor your approach and strategy to each creditor group, and to identify potential allies and opponents.

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3 Develop your proposal

Once you have assessed your situation and identified your creditors, you need to develop a realistic and credible restructuring proposal that addresses your financial challenges and meets your creditors' expectations. Your proposal should include a detailed business plan that outlines your operational improvement measures, revenue growth initiatives, cost reduction efforts, and strategic vision. It should also include a financial projection that shows your cash flow generation, debt repayment capacity, and valuation assumptions. Your proposal should also specify the terms and conditions of your restructuring offer, such as debt forgiveness, debt exchange, debt extension, interest reduction, equity conversion, or other options.

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4 Engage your advisors

Restructuring is a complex and technical process that involves legal, financial, accounting, tax, and regulatory issues. Therefore, it is advisable to engage professional advisors who can assist you with the preparation, negotiation, and execution of your restructuring plan. You should seek the advice of lawyers, accountants, bankers, consultants, and other experts who have experience and expertise in restructuring transactions. They can help you to evaluate your options, design your proposal, communicate with your creditors, draft your documents, and facilitate your deal.

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Carl Seidman, CSP, CPA

Helping finance professionals master data, FP&A and CFO advisory services through learning experiences, masterminds, training + community | Adjunct Professor in Data Analytics | Course Creator | Advisor | Microsoft MVP
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Advisors can provide a wealth of intelligence given the many different restructurings they've likely been a part of. Ensure that the advisor chosen has a background engaging in the industry and has the right connections with investors, lenders, liquidators, and valuators. While much of a restructuring focuses on the finances, much of a restructuring entails strong communication, mediation, and cooperation. When parties cooperate and come to a fair resolution, it usually means the best outcome for the collective. When they punish each other, it usually means there will be further bleeding.

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5 Communicate with your creditors

Communication is a key element of any successful restructuring negotiation. You should communicate with your creditors early, often, and transparently, and establish a constructive and respectful dialogue. You should explain the reasons and objectives of your restructuring plan, and provide them with relevant and accurate information and data. You should also listen to their feedback and concerns, and address them promptly and effectively. You should also seek to build trust and rapport with your creditors, and demonstrate your commitment and willingness to cooperate and compromise.

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6 Negotiate your deal

The final step in preparing for a restructuring negotiation is to negotiate your deal with your creditors. You should approach the negotiation with a clear strategy and tactics, and with flexibility and creativity. You should identify your best alternative to a negotiated agreement (BATNA), and your reservation point (the minimum acceptable outcome). You should also identify your creditors' BATNA and reservation point, and try to find a zone of possible agreement (ZOPA) that satisfies both parties. You should also use various negotiation techniques, such as anchoring, framing, concession-making, coalition-building, and problem-solving, to influence and persuade your creditors. You should also be prepared to handle any challenges, disputes, or impasses that may arise during the negotiation process.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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JOSEPH BONN

Owner at E/RE Corporation
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Have a couple of thoughts: Is this an in Toto restructuring or is there only a viable piece(s). If the latter, are there assets sales, business line sales, or liquidations. Who are the buyers, expectations on time and value? Who will organize and execute this leg What liabilities are not on the books, eg shutdowns or liquidations that trigger pension, retiree medical, or layoff cash costs. What environmental liabilities might be triggered The emerging entity financial plan has to have enough spare breathing room for economic, unexpected, or timing events that affect 12-18 month cash flow

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How do you prepare for a restructuring negotiation with creditors?

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1 Assess your situation

2 Identify your creditors

3 Develop your proposal

4 Engage your advisors

5 Communicate with your creditors

6 Negotiate your deal

7 Here’s what else to consider

Restructuring

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