News & Insights

* Last update January 2023

What exactly is restructuring and what does the role involve?

Restructuring can be split into two categories. Financial Restructuring and Operational Restructuring.

Financial Restructuring involves situations where there is a level of debt held by a company or country that is either unsustainable or at risk of being unable to be serviced, repaid or refinanced in accordance with its terms. As a result separate financial and legal advisers are employed by relevant stakeholders to the situation, such as the company and lenders, to negotiate and implement a solution to avoid insolvency.

There can be many different solutions, ranging from financial covenant amendments, deferral of interest and repayment dates (“amend to extend transactions”) where more time is required for a refinancing, to in the case of more fundamental over-leverage, equity injections, divestments and more wholesale redesigns of the company’s capital, corporate and ownership structures such as debt for equity swaps in which lenders take some degree of ownership of the business in return for renegotiation or reduction of debt. Each solution is unique to the business requirements and is generally the result of complex negotiations between often multi-party stakeholders.

"A deep understanding of business plans, cash flow and liquidity, valuation techniques, negotiation strategies, debt documents and restructuring implementation mechanisms is required, amongst other skills."

Lead financial advisers in restructuring transactions typically take the lead role, assessing the situation, determining options and the optimal solution for their clients and then leading negotiations to achieve these objectives. They will also play a lead role in managing the process towards completion and co-ordinating other advisers.

A deep understanding of business plans, cash flow and liquidity, valuation techniques, negotiation strategies, debt documents and restructuring implementation mechanisms is required, amongst other skills. There is a meaningful degree of overlap with M&A competencies and as a result restructuring teams often sit within the Corporate Finance arm of investment banks.

Legal advisers will assist in a detailed assessment of the capital and corporate structure; assessing rights and remedies through the debt documentation and helping design the legal implementation structure. They will work closely with the FA in order to maximise strategic leverage in negotiations and will then lead the documentation and legal implementation of the transaction.

Operational Restructuring is more focused on business improvement and in optimising corporate operations, processes and structures and is generally a separate discipline.

What are the main considerations for someone thinking about a career in financial restructuring?

I would recommend learning as much as possible about restructuring and what it entails. Try to speak to people in the industry and review and understand historic transactions. It’s a demanding job, but very interesting and rewarding, so you have to ensure that you’re going to be sufficiently enthused and motivated to see it through. Think about why you would want to go into restructuring, as compared to other Corporate Finance roles such as M&A.

"It’s a demanding job, but very interesting and rewarding, so you have to ensure that you’re going to be sufficiently enthused and motivated to see it through."

Such preparation would also stand you in good stead for interviews.

What traits make a good restructuring advisor? 

As well as strong financial analytical capabilities there’s a strong strategic element, as you seek to use financial and legal information to maximise your client’s negotiating position. You need to be able to review, comment on and understand debt and other legal documentation, have strong attention to detail but also be able to communicate complex situations in clear and concise ways for senior-level clients. Project management and driving deals forward to deadlines is also a necessary skill, particularly because timing may be critical when the business may not have much time in order to avert insolvency.

Have you got any personal career advice for new recruits?

For a piece of advice to a new recruit, I would recommend that new team members on a restructuring transaction seek to understand all elements of the transaction, leaving them better placed to proactively take on more responsibility and increase their value to the team. Don’t be afraid to ask questions in pursuit of this and you’ll find that senior team members are happy that you asked.

There can be a lot of hard work and time-pressure when you start a career in this sector, which can make it difficult to step back and understand the bigger picture of the deal, however this understanding is very important to progression and will also make your experience significantly more interesting and rewarding!

What does the restructuring market look like now and how do you envisage it will look in the future?

The recent tightening of debt markets and widening credit spreads, combined with the impact of inflationary pressures and a softening economy on firms’ performance will make debt service and refinancing more challenging. 

The restructuring market is seeing an increase in activity as a result, however the effect is moderated by many firms having taken advantage of the benign credit conditions post Covid to refinance.  This has pushed out the maturity wall and alongside covenant-light structures has meant that for many companies, particularly fixed rate bond issuers, debt remains serviceable, whereas floating rate borrowers in challenged industries may see earlier signs of stress.