Restructuring

What is 'Restructuring'

Restructuring is a type of corporate action taken when significantly modifying the debt, operations or structure of a company as a means of potentially eliminating financial harm and improving the business. When a company is having trouble making payments on its debt, it will often consolidate and adjust the terms of the debt in a debt restructuring, creating a way to pay off bond holders. A company restructures its operations or structure by cutting costs, such as payroll, or reducing its size through the sale of assets.

BREAKING DOWN 'Restructuring'

A company may restructure as a means of preparing for a sale, buyout, merger, change in overall goals or transfer to a relative. Perhaps the business has a failed product or service and does not bring in enough revenue for covering payroll and debts. As a result, depending on agreement by shareholders and creditors, the company may sell its assets, restructure its financial arrangements, issue equity for reducing debt, or file for bankruptcy as the business maintains operations.

Organizational Restructuring

When a company restructures internally, the operations, processes, departments or ownership may change, enabling the business to become more integrated and profitable. Financial and legal advisors are often hired for negotiating restructuring plans. Parts of the company may be sold to investors, and a new chief executive officer (CEO) may be hired to help implement the changes. The results may include alterations in procedures, computer systems, networks, locations and legal issues. Because positions may overlap, jobs may be eliminated and employees laid off.

Restructuring should result in smoother, more economically sound business operations. After employees adjust to the new environment, the company should be better equipped for achieving its goals through greater efficiency in production.

Costs of Restructuring

Costs can add up quickly for things such as reducing or eliminating product or service lines, canceling contracts, eliminating divisions, writing off assets, closing facilities and relocating employees. Entering a new market, adding products or services, training new employees, and buying property results in extra costs as well. New characteristics and amounts of debt often result, whether a business expands or contracts its operations.

Example of Restructuring

In July 2016, Arch Coal, Inc. completed a settlement with the Official Committee of Unsecured Creditors (UCC) and some of its senior secured lenders holding over 66% of its first-lien term loan. As part of the company's restructuring plan, Arch filed an amended Plan of Reorganization involving the settlement, and a related Disclosure Statement with the U.S. Bankruptcy Court for the Eastern District of Missouri. After approval of the Disclosure Statement, Arch plans to gain lender approval and request the Bankruptcy Court’s confirmation of the Plan, according to the timeline stated in the Global Settlement Agreement.