Trouble Debt Restructuring is a troubled debt restructuring. Where creditors provide concessions for debtors who are experiencing financial problems due to economic or legal factors. This concession is usually not given to ordinary debtors, therefore the creditor will pay attention to various things below before granting Trouble Debt Restructuring concessions:
a. The debtor has defaulted on one of his debts or has a high probability of this happening in the future.
b. The debtor declares bankruptcy or at least is in the process of going bankrupt.
c. There is an opportunity for the debtor’s business to stagnate.
c. Securities owned by debtors are delisted from the stock exchange or are in the process of being delisted.
d. The debtor’s cash flow is estimated to be insufficient to pay off the debt in accordance with the contract.
e. Debtors cannot access fresh funds other than current creditors.
When the above requirements are met, the creditor will provide concessions in the form of reduced interest, postponement of payments, replace payments with equity, and so on.
How to deal with Trouble Debt Restructuring?
Unfortunately, the question above does not mention ‘who’ is handling this Trouble Debt Restructuring. Is it the creditor or the debtor? Because of course how to handle it will be different. Therefore I will discuss from two sides at once.
a. Debtor
Entities that face Trouble Debt Restructuring are usually already in checkmate position. The problem is that one of the most important conditions in determining this is the absence of other sources of funding other than the current creditor. So if you don’t get concessions, the debtor is sure to go bankrupt. Even if it passes the credit score of the debtor will be affected. So there is the potential for the company to have difficulty getting funding in the future.
So the best way to deal with it is to convince current creditors. It can be by showing the company’s problems and how the company will overcome them, to a realistic budget plan when given credit slack.
b. Creditor
When the debtor experiences Trouble Debt Restructuring, the creditor can choose to agree or refuse to provide concessions. There are a number of variables that are taken into account by creditors before deciding, for example:
a. The amount of principal and collateral to be paid must be more significant than the payment to be restructured. The problem is that if it is reversed, there is a possibility that the credit disbursed is at risk of being lost.
b. The delay period must be shorter than the credit due. For example, the maturity period is 10 years, the restructuring period must be less than this.
c. Has there been a cumulative effect of past debtor restructuring? If so, then the creditor will refuse because there is a potential for default in the future. But if there is no then it can be approved.
Trouble Debt Restructuring itself means the restructuring of problem debts, aka the handling of bad loans. In the world of credit, bad credit is the thing that the debtor and creditor want to avoid the most. For debtors, problematic debt can be a burden on the mind, financial burden, reputation burden, and a decrease in credit score. Meanwhile, for creditors, of course, problem debt means a loss. Anticipatory steps have generally been attempted at the beginning before credit is given, especially by creditors, starting from credit scores, criteria for credit recipients, to verifying the debtor’s financial condition. But it is unavoidable, sometimes there are reasons for a debt/credit to become problematic due to various factors and changes that occur during the credit period.
Generally, troubled debt is the source of the problem, technically it comes from the debtor. Usually, debt becomes problematic for two reasons:
1. The debtor is in bankruptcy/bankruptcy.
2. There is a change in the cash flow of the debtor which makes it difficult for the debtor to complete the credit contract.
Of course the best way is with openness and good faith, especially from the debtor’s side. In addition, the handling method is also different when viewed from both sides, both from debtors and creditors.
So this is how, in credit, actually creditors (banks, financial institutions) usually have a higher bargaining position than debtors. Basically, it is the debtor who needs the creditor. So the restructuring will usually be carried out by creditors if the debtor shows good faith first. For example, if someone has a home mortgage debt and it turns out he has been laid off. So, the debtor can go to the creditor and be open about the problem. In this case, the debtor can apply for restructuring and discuss this with the bank/creditor. As far as I know, sometimes over-credit can be attempted and the bank will facilitate this.
But sometimes it can also happen the other way around, although rarely. In financial institutions that live from credit, there is usually an indicator called NPL (Non Performing Loan) aka bad credit. It could be that if the NPL target has exceeded the threshold, creditors soften and try to restructure bad loans. For example, the minimum NPL threshold at bank A is 5%, so when the NPL has reached 5%, bank A will try to review the existing bad loans and sort out which ones can be restructured.
So in essence, as debtors we must always be open to creditors and always show good faith. Meanwhile, as a creditor, you should be pro-active in monitoring the credit of your customers and be able to provide various solutions to overcome bad loans, so that the NPL value is not too large.
The main things in Debt Restructuring:
Debt restructuring is for, people, and even more so for the country.
The debt restructuring process can lower the loan interest rate or extend it to coincide with the repayment due date.
Debt restructuring may include an exchange of debt for equity, in which creditors agree to cancel some or all of the debt in exchange for equity in the business.
A country that wants to restructure its debt may transfer its debt from private zones to public zone institutions.
How to Overcome Trouble Dept Restructuring:
1. Debt Rescheduling (Rescheduling)
The way to deal with the Dept. Restructuring trouble is that we come to the bank where we borrow money. Then we talk to the bank honestly and openly that our company is experiencing bad finances so it is having difficulty paying debts so the bank considers that our debt can be rescheduled.
2. Restructuring debt (requirement of return)
•Debtors notify that they face difficulties in paying debts.
•Based on Bank Indonesia Regulation Article 57 PBI 14/ 2012, debtors who can be rescheduled are debtors who still have good business prospects and are judged to be able to pay their obligations after rescheduling is attempted. This matter will be analyzed through business prospects and cash flow projections, and will be decided by a Bank official who has a higher position than the party who decides on rescheduled credit. And if the Bank official is the highest official, then the rescheduling decision must be made by an official at the same level as the official.
3. Reconditioning debt (Rearrangement)
Later, after consideration, if the parties agree to reschedule the debt again, it will be carried out with debt reconditioning or commonly called restructuring / restructuring of debt.