Is there a difference between the two? From what I read in the text, US companies prefer to go the bankruptcy vs.the restructuring route, so I am not sure what is the exact difference between the two in regards to outstanding debt payments.
Thanks,
Yes, of course.
US companies prefer bankruptcy probably because Chapter 11 benefits. A series of powerful benefits for companies that can’t afford to repay their financial obligations. In the process of “bankruptcy”, the company can restructure its outstanding debt.
However, restructuring is always the first attempt in many countries because going bankruptcy means going to the void, lose control over assets and more. US is different.
The difference between restructuring debt and bankruptcy is that in the former, the company negotiates better debt conditions to overcome the financial stress like increasing the debt maturity, reducing down payments or repayments, decreasing the interest rate, etc. But the main goal is NOT to bring the company into bankruptcy (very bad in most countries).
Bankruptcy means losing control over assets and probably liquidating them to repay the debt, so the company close operations or is “rescued” (acquired) by another company.
Hope this helps.
On the other hand a restructuring is a fashioned term to make alibi to get rid off unnecessary employees and entire business units. Of course in those areas with powerful unions and strict labor legislative.
Restructuring the business is a more difficult process if we compare these two. Much easier to announce the bankruptcy and get the proper papers for court.