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Corporate Debt Restructuring

Corporate debt restructuring allows companies to renegotiate existing debt obligations to avoid default. This can involve reducing interest rates, extending repayment schedules, or converting some debt to equity. An example is Suzlon Energy, which received a two-year payment moratorium, lower interest rates, and had $1.5 billion in interest converted to equity shares. The CDR mechanism provides a framework for creditors representing at least 20% of a company's debt to collectively restructure loans.

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114 views5 pages

Corporate Debt Restructuring

Corporate debt restructuring allows companies to renegotiate existing debt obligations to avoid default. This can involve reducing interest rates, extending repayment schedules, or converting some debt to equity. An example is Suzlon Energy, which received a two-year payment moratorium, lower interest rates, and had $1.5 billion in interest converted to equity shares. The CDR mechanism provides a framework for creditors representing at least 20% of a company's debt to collectively restructure loans.

Uploaded by

Kumar Abhishek
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Corporate Debt Restructuring

Companies use debt restructuring to avoid default on existing debt or to take advantage of a lower interest rate. Companies can also restructure their debt by Reduction of interest rate extension of repayment schedule conversion of a part of loan to equity

Example: SUZLON Interest rates reduced by three per cent Two year moratorium on principal and term-debt interest payments. Enhancement of working capital facilities by Rs 1,800 cr. Rs 1,500 cr interest during moratorium to be converted into equity over two years Suzlon to issue 78.37 crore equity shares at Rs 18.51 a share, to its CDR lenders (DEBT-EQUITY SWAP)

Reference to CDR Mechanism may be triggered by:


Any or more of the creditors having minimum 20% share in either working capital or term finance, or By the concerned corporate, if supported by a bank/FI having minimum 20% share as above.

RBI Guidelines on CDR


CDR is a non-statutory mechanism based on Debtor-Creditor Agreement (DCA) and Inter- Creditor Agreement (ICA) Agreement by 75% of creditors in value and 60% by number No CDR for willful defaulters, fraud or misfeasance cases

Eligibility criteria
CDR does not apply to accounts involving only one financial institution or one bank The CDR mechanism will cover only multiple banking accounts / syndication / consortium accounts with outstanding exposure of Rs.20 crore and above by banks and institutions

CDR system in the country has a three tier structure


CDR Standing Forum and its Core Group
Representative general body of all financial institutions and banks participating in CDR system To lay down policies and guidelines To monitor the progress of corporate debt restructuring Chairman & Managing Director: IDBI SBI ICICI Indian Banks Association Unit Trust of India LIC The Forum will elect its Chairman for a period of one year and the principle of rotation will be followed in the subsequent years.

CDR Empowered Group


To decide individual cases of corporate debt restructuring Consisting of ED level representatives of IDBI, ICICI Bank Ltd. and SBI as standing members, in addition to ED level representatives of financial institutions and banks who have an exposure to the concerned company.

CDR Cell
To make the initial scrutiny of the proposals received from borrowers / lenders If found feasible, the CDR Cell will proceed to prepare detailed Rehabilitation Plan with the help of lenders and, if necessary, experts to be engaged from outside If not found prima facie feasible, the lenders may start action for recovery of their dues

Category 1 Accounts classified as Standard and sub-standard Category 2 Accounts classified as doubtful
Stand-Still Clause
Both the debtor and creditor(s) shall agree to a legally binding 'stand-still' whereby both the parties commit themselves not to take recourse to any other legal action during the 'stand-still' period.

DISCLOSURE
Banks / FIs should also disclose in their published annual Balance Sheets, under "Notes on Accounts", the following information in respect of corporate debt restructuring undertaken during the year: a. Total number of accounts total amount of loan assets and the amount of sacrifice in the restructuring cases under CDR. [(a) = (b)+(c)+(d)] b. The number, amount and sacrifice in standard assets subjected to CDR. c. The number, amount and sacrifice in sub-standard assets subjected to CDR. d. The number, amount and sacrifice in doubtful assets subjected to CDR.

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