This restructuring financial model template is used to demonstrate the financial interactions behind the restructuring process. Adjust this model to fit your needs as you conduct your financial analysis. For example, this model can be used when a company undergoes restructuring to prepare for a sale, merger, or acquisition. Alternatively, you can use this model in a more distressed scenario, such as chapter 11 bankruptcy, where a company must restructure while emerging from bankruptcy.
- Transaction Sources and Uses of Cash
- Recovery Analysis – Analysis of financial claims prior to emergence from restructuring transaction
- Distressed Investment Analysis – Calculation of returns relating to the restructuring transaction. Key outputs include the internal rate of return (IRR) and multiple on invested capital (MOIC) for each stakeholder of the restructuring transaction
Restructuring is a financial operation done by a company that is looking to change its capitalization structure. Usually, restructuring is done when the company is under some sort of financial stress. As previously mentioned, chapter 11 bankruptcy is an example of significant financial stress where restructuring occurs.
In the case of bankruptcy, there are many procedural fees that come along with a very long process. Due to this, creditors will sometimes allow the debt terms to change to avoid a worse alternative. This is also true in the case of default. For a company in a poor financial situation, restructuring can be thought of as a win for both sides of the deal. The company gets a second chance at life while the creditors can avoid a lengthy bankruptcy proceeding or the debtor defaulting on their loans. Use this restructuring financial model template to get a look at the financial workings behind the restructuring process.
Distressed Debt Investing
Some investors, called vulture investors, are happy to put their money towards a company in distress. This is because a company that is at a high risk of default will have debt that is trading at a significant discount. While purchasing large amounts of debt, these investors will aim to some form of control of the company. By doing so, they aim to turn the company around through various methods such as replacing management. Vulture investors make large profits by selling their debt once the company has turned around, whether by their methods or after emerging from bankruptcy and restructuring.
Use CFI's restructuring financial model template to analyze the return each creditor can earn through the restructuring process!