What is Restructuring?

Restructuring is an action taken by a company to significantly modify the financial and operational aspects of the company, usually when the business is facing financial pressures. Restructuring is a type of corporate action taken that involves significantly modifying the debt, operations, or structure of a company as a way of limiting financial harm and improving the business.

When a company is having difficulties with making the 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 bondholders. A company can also restructure its operations or structure by cutting costs, such as payroll, or reducing its size through the sale of assets.

KEY TAKEAWAYS

Restructuring is when a company makes significant changes to its financial or operational structure, typically while under financial duress.

Companies may also restructure when preparing for a sale, buyout, merger, change in overall goals, or transfer of ownership.

Following a restructuring, the company should be left with smoother, more economically sound business operations.

Understanding Restructuring

There are numerous reasons why companies might restructure, including deteriorating financial fundamentals, poor earnings performance, lackluster revenue from sales, excessive debt, and the company is no longer competitive, or too much competition exists in the industry.

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