Corporate Financial Restructuring

Corporate Financial Restructuring

Financial restructuring is no longer the last resort of companies in crisis — it has become a cornerstone of modern corporate management. The environment demands anticipation: acting while there is still room to maneuver is what separates businesses that recover from those that do not.

Corporate financial restructuring is the process by which a company reorganizes its capital structure, debt obligations, and operations with the aim of restoring economic viability, improving liquidity, and ensuring long-term sustainability. It goes well beyond renegotiating bank terms: it encompasses a thorough review of the business model, cost structure, working capital management, and — frequently — the ownership composition.

It is important to distinguish financial restructuring from operational or strategic restructuring, even though all three dimensions are usually addressed simultaneously. Financial restructuring works on the liability side and capital structure; operational restructuring targets process efficiency; and strategic restructuring addresses the business model and competitive positioning. A successful process integrates all three.

Timing is the single most critical variable. Companies that initiate restructuring at the probability-of-insolvency stage achieve a 70–80% success rate in implementing their plans. Those that wait until insolvency is current typically end in liquidation.

The three stages of insolvency and when to act

The reform of Spain's Consolidated Insolvency Act (TRLC), driven by EU Directive 2019/1023 and consolidated in 2025, structures insolvency into three distinct stages with very different strategic implications. Identifying which stage a company is in is the essential first step.

Warning signs that cannot be ignored

Recognizing the right moment to act is critical. The following indicators should trigger immediate attention:

• Repeated breach of banking covenants.
• Short-term debt that cannot be refinanced.
• EBITDA insufficient to cover interest expense (ICR below 1.5x).
• Recurring end-of-month cash shortfalls.
• Net Working Capital (NWC) growing faster than revenue.
• Negative or severely eroded net equity due to accumulated losses.
• Days Sales Outstanding (DSO) exceeding 80 days.
• Loss of customers representing more than 20% of gross margin.

Key metrics for financial diagnosis

A rigorous diagnosis requires precise quantitative analysis. The fundamental ratios in any restructuring process are:

The diagnosis must be complemented with a 13-week cash flow forecast — the market standard in stress situations — which pinpoints the moments of greatest cash tension with surgical precision. This analysis, combined with an Independent Business Review (IBR) prepared by an independent third party, is the most powerful tool for building credibility with creditors and accelerating agreement.

Phases of the financial restructuring process

1. Comprehensive financial diagnosis. Analysis of financial statements, banking pool, NWC, and contingent liabilities (tax, labor, litigation). The IBR determines whether the issue is a temporary liquidity problem or a structural solvency issue — a distinction that entirely dictates the strategy.
2. Definition of objectives and scenarios. Business plan with base, optimistic, and pessimistic scenarios to underpin negotiations. Key objective is defined: ensuring continuity, preparing a sale, bringing in a new partner, or executing a debt-to-equity conversion.
3. Design of the restructuring plan. Combination of debt, capital, and operational measures tailored to the company. Negotiation strategy for each creditor group is defined, with particular attention to the treatment of public debt (Tax Authority and Social Security).
4. Creditor negotiation and agreements. The central phase of the process. Transparency and plan credibility are essential. Professional management of simultaneous negotiations with multiple lenders, backed by the IBR and a recognized restructuring expert, accelerates agreement significantly.
5. Implementation and regulatory compliance. Execution under the supervision of a designated restructuring team. If private negotiations stall, formal mechanisms of the Insolvency Act are activated.
6. Ongoing monitoring and adjustment. The plan is not static. It requires continuous oversight through an updated financial dashboard and the agility to adjust quickly when the macro or business environment changes.

Financial and Operational Tools

Debt Restructuring

Haircuts involve the forgiveness of part of the principal or interest; standstills extend maturity dates. Creditors typically demand operational efficiency plans in exchange, demonstrating a credible path back to profitability. Debt-to-equity swaps are a vital tool for companies with broken balance sheets but operationally viable businesses.

The pre-packaged insolvency (pre-pack) deserves special attention: it allows a business unit sale to be structured before the formal insolvency filing, so the judge can authorize it almost immediately after filing. This preserves goodwill and asset value, avoiding the deterioration that accompanies prolonged proceedings.

IMPORTANT — Public debt (Tax Authority and Social Security): These claims carry extreme priority status under Article 616 bis of the TRLC. They cannot be subject to haircuts in restructuring plans and must be settled within strict timeframes (6 to 18 months post-approval). Failure to properly size this obligation when designing the plan can result in it being challenged by the public administration.

Capital Restructuring

Capital increases through new investors — Private Equity, family offices, strategic partners — strengthen equity and signal commitment to the banking pool. Capital reductions cancel shares to offset accumulated losses and clean up the balance sheet. Disposal of non-core assets (real estate, subsidiaries, brands) generates immediate cash to reduce debt.

Operational Measures to Improve Cash Generation

Working capital improvement is the fastest and least costly source of liquidity: shortening the receivables collection period, extending payables, optimizing inventory, and implementing invoice discounting or supply chain finance (confirming). In parallel, contract reviews, lease renegotiations, and deferral of non-critical capital expenditure release cash immediately.

The financial restructuring expert

The TRLC reform introduced the figure of the restructuring expert: a professional with combined financial and legal expertise whose mission is to facilitate negotiation between the debtor and its creditors. Unlike the insolvency administrator, this expert does not take control of management — they act as an independent technical mediator, subject to the same conflict-of-interest restrictions as statutory auditors. Their appointment is mandatory when enforcement suspension is requested, when the plan includes cramdown, or when creditors holding more than 50% of affected liabilities request it.

Beyond the regulated role, the involvement of a specialized financial advisor is the single most important differentiating factor in any restructuring process:

• Preparation of the IBR that generates credibility with bank risk committees.
• Construction of the financial model and business plan underpinning negotiations.
• Professional management of simultaneous negotiations with multiple lenders.
• Identification of financing alternatives or investors the internal team has not considered.
• Acting as a buffer between the business owner and creditor pressure, allowing management to focus on running the business.

At the negotiating table, the company should present itself not as a debtor asking for mercy, but as a partner offering a viable business plan. The IBR and a credible restructuring expert are the strongest credentials for securing favorable terms.

Advantages of restructuring

• Enables the company to restore financial viability.
• Protects the interests of creditors and employees.
• Seeks to avoid liquidation or insolvency.

Conclusion

Financial restructuring is a high-complexity exercise that goes far beyond accounting.

Companies that successfully navigate a restructuring share three characteristics: they anticipate the problem before it becomes irreversible, they transform their operations rather than simply renegotiating debt, and they surround themselves with specialized advisors who bring technical credibility to the creditor table. Cases like Grupo Dia and Codere have demonstrated that, with transparent negotiation and deep operational restructuring, seemingly terminal situations can be reversed.

Solvency is not a static state — it is a dynamic process of continuous adaptation. Restructuring, understood in its full scope, is the most solid guarantee of long-term business prosperity.

Does your company need financial restructuring?

At Maraz Corporate Finance we specialize in debt restructuring and refinancing for middle-market companies. Every engagement is tailored to the specific situation of the business.

Javier de Rojas Roca de Togores

Partner – Maraz Corporate Finance