What is the meaning of Debt Syndication and Corporate Debt Restructuring?

What is the meaning of Debt Syndication and Corporate Debt Restructuring

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Debt Syndication refers to the process through which a company acquires a large loan through a number of investors or companies. Companies generally use this option when they wish to raise funds for a new business venture or to save the company from bankruptcy.

Role of a Bank

Quite often banks end up as the prime lenders to a company. Since banks are generally averse to taking risks, they may employ debt syndication to reduce their outlay. Generally, banks advance a little money by way of loan and act as a principal in arranging a deal between the various investors. They take this loan to a group of investors and sell the remaining part of it to them, thereby reducing their risk considerably in the business venture. Since banks are wary of underwriting large loans, they use this route to reduce the initial risk.

Who are the Investors

Banks are not the only entities that take part in a debt raising deal. Some of the other firms that share the cost of investment include investment firms, insurance companies, credit unions, securities firms and individual investors to name a few.

Process of Restructuring

Corporate debt restructuring is the most preferred route of companies that are on the verge of bankruptcy. Though this route is less expensive to a company it involves adhering to a systematic process. The process begins with the consultation process which involves a series of meetings with the borrowing company. Then it moves into the negotiation stage where both the parties arrive at a solution after which the assets of the company are liquidated. Then the restructuring process begins with the signing of a contract in which the borrowing company agrees to the financial conditions put forth by the lending company in terms of the interest, terms of payment, etc. This is the final option a company has before it goes into bankruptcy.

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