Debt Restructuring Definition, Reason, How to Achieve


We are living in a time when many countries face heightened debt vulnerabilities. Already high before the pandemic, debt levels reached a 50-year peak following the growth in government spending to combat COVID-19. Debt is not inherently bad; borrowing can allow countries to finance vital government investment. But unsustainable levels of debt can have devastating consequences for a country’s population, crowding out government spending on even basic necessities including food, medicine, and fuel imports. In Sri Lanka, for example, 71 percent of government revenue was spent on debt service before the country defaulted. Even where the tradeoff is not so dire, unsustainable debt service can limit productive investments in infrastructure, education, healthcare, and other sectors, hampering the economic growth necessary to reduce a country’s debt burden.

Debt Restructuring

This can help you get back on track with your payments and avoid defaulting on your loan. When going through the debt restructuring process, don’t be afraid to negotiate new terms with lenders. Debt restructuring is the process of renegotiating the terms of your debt so your payments are more manageable. This can include extending the repayment period, lowering the interest rate, or reducing the overall balance owed. However, the cast of creditors is more diverse than it once was, and includes bondholders, state-owned enterprises, and non-Paris Club official creditors like China. These newcomers, especially China, are much more likely to negotiate the restructuring of their claims independently, in direct contrast to the principles of solidarity, consensus, information sharing, and comparability of treatment.

Debt–Equity Swap

Since its establishment, the initiative has approved debt reduction packages for 37 countries, 31 of them in Africa, providing approximately $76 billion in debt-service relief in total. 債務重組 restructuring can also result from filing Chapter 13 bankruptcy, which lets you repay the included debts with a court-approved repayment plan. The repayment plans generally last for three to five years, after which the remainder of the included debts are discharged. In a debt-for-equity swap, a company’s creditors generally agree to cancel some or all of the debt in exchange for equity in the company.

Debt restructuring for individuals

Enabled by data and technology, our services and solutions provide trust through assurance and help clients transform, grow and operate. It is the world’s biggest debt restructuring deal, affecting some 206bn of bonds. As of 2009 the firm was handling over 2,000 new debt restructuring cases each month. Because the system of debt restructuring is voluntary, and until we get the collective action clauses and the debt restructuring mechanism in place, moral suasion will remain important. In 2001, recovery was swift after completing their debt restructuring in 2000, and selling some of their subsidiaries, including those in coal mining and chemicals. Debt restructuring is a process of restructuring the company’s obligation facing financial difficulties.

Under the initiative, 48 of 73 eligible low- and lower-middle-income countries postponed debt payments to G20 bilateral creditors until DSSI expired at the end of 2021, ultimately suspending $12.9 billion in debt-service payments. Private creditor participation in DSSI was voluntary, and G20 countries urged private actors to seek participation on equal terms—but almost no private creditors engaged with the mechanism. DSSI was supported by the World Bank and the IMF, which advised on debt management and transparency practices and monitored public spending for participating countries. The firm’s outstanding debt was reduced through a so-called debt-for-equity swap in which other second lien creditors had agreed to exchange what they were owed for stock in the reorganized company. To initiate the process, a country must first determine whether it can continue servicing its debt or whether a restructuring is necessary. If a country owes more than it could realistically hope to pay at any point in the future, it is insolvent, and debt restructuring is needed.

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