Debt restructuring


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Possible ways to restructure debt internally or externally

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Debt restructuring

  1. 1. XYZ LTDDebt RestructuringInter Firm Lending Restructuring Milton 12/13/2011 Debt Securitization
  2. 2. December 13, 2011 [Debt Restructuring]2 Ways a. Lending for money owed to client b. Fees to be offset against funds owed to clientsHow to Meet the Deficit 1. Units to pay off their debts immediately - Option not viable due to stress on cash flow the option gives to units 2. To have short receivables - Clients that owe units pay immediately, units use clients payment to reduce deficit o The money would be 50/50 rule on money availability 3. Prepayment - Agreement with clients to pay deposit in advance to be offset on future services provided by the firm.Internal Debt Restructuring 1. Capitalization of Debt 2. Classification of Lending - Working Capital - Asset leasing 3. Repayment Plan a. Coming up with a repayment plan.Sichangi Partners Advocate 2011 Page 2
  3. 3. December 13, 2011 [Debt Restructuring]Simple Model: Basic Structures; 1. Debt Capitalization /Securitization HFS- Units- Investors- Lender Borrower Recovery Financial Guarantee Furquipment SP Trust 2. Arrangements for Simple Model: Hill Financial Services - Sponsor __________________________________________ Accounts Receivables Sale or Agreement Special Purpose Vehicle _______________________________________________ 1. Issue Credit Enhancement Accounts 2. Sovereign Protection Receivables 3. Introduce Interest Rates 4. Cash Flow ReallocationSichangi Partners Advocate 2011 Page 3
  4. 4. December 13, 2011 [Debt Restructuring] 3. Explanation of Debt Capitalization: Borrower Units Loan Payment Loan Agreements Proceeds Proceeds Hill Finance SPV- Investor Services Furquipment Sale of Asset Assets Backed Securities Services Team Service AgreementsKey Decision:Securitize the assets Securitize the Assets Form of transfer Form of special Form of credit Form of cash flow Form of of asset purpose vehicle Enhancement Allocation Transformation of Cash flowsSichangi Partners Advocate 2011 Page 4
  5. 5. December 13, 2011 [Debt Restructuring]The Process Is the company ready? Are the assets Suitable? What pool? What legal Structure? What credit Enhancement?Securitization Of Assets - Securitization is the transformation of an illiquid asset into a security. - For example, a group of consumer loans can be transformed into a publically-issued debt security. - A security is tradable and therefore more liquid than the underlying loan or receivables, Securitization of assets can lower risk, add liquidity, and improve economic efficiency. - Sometimes, assets are worth more off the balance sheet than on it.Types of Assets to Securitize: a) Volume which is sufficiently large and homogenous to facilitate statistical analysis b) A stable history of rates, defaults, delinquencies, prepayments and so forth c) Sufficient diversification- to reduce vulnerability to economic stresses d) Basic lender’s credit quality standards that are capable of being evaluated and approved by accounting and finance dept and specialized independent financial guaranty companies e) Assets must be transferable and unencumberedThings to Assess from Assets Provided: a) Asset portfolio analysis b) Legal structure of the transaction c) Quality of the originator/servicer d) The trustee/ Funding Entity e) The cash flow structure f) The counterpartiesSichangi Partners Advocate 2011 Page 5
  6. 6. December 13, 2011 [Debt Restructuring]Option 2 Available From: Ford Motors: Sichangi Advocate HFS UNITS Funds Owners- Trust SPV ___________________________________________________________________ Receivables Hill – CEOs Office Corporate Brief Litigation Westlands Rongai etc. Furquipment _________________________________________________________________ Receivables Assets Backed Securities (Furquipment)Sichangi Partners Advocate 2011 Page 6