Debt restructuring has become a common pit stop on the road to bankruptcy for risky borrowers. According to Bank of America, even when companies receive special treatment from a few creditors, they still default again about 40% of the time. This year, there has been at least $24 billion of debt exchanged by distressed companies attempting to fix their financial situations, making it one of the most active years for this type of activity since 2008. Liability management exercises can be successful if the terms of the deal are substantial enough and if the new capital structure is significantly different from the old, unsustainable one. Barclays predicts that a wave of debt restructuring exercises will continue and become more contentious [396dcffa].
The challenges of debt restructuring are particularly relevant for risky borrowers, including zombie companies. These companies, which are already struggling to cover their debt costs with operating profits, face even greater difficulties when it comes to debt restructuring. Rising interest rates and the tightening of lending conditions make it harder for these companies to secure the necessary funding to restructure their debt. As a result, many of them may be forced into bankruptcy. The potential collapse of these risky borrowers could have significant implications for the economy, leading to layoffs and economic disruption [3f558fb2] [396dcffa].
