Corporate Financial Restructuring

Corporate financial restructuring

Financial restructuring has ceased to be the last resort of companies in crisis and has become a pillar of modern corporate management. The environment demands foresight: acting while there is still room for manoeuvre makes the difference between recovering the company or losing it.

Corporate financial restructuring is the process by which a company reorganises its capital structure, debt and operations with the aim of restoring its economic viability, improving its liquidity and guaranteeing its long-term sustainability. It is not limited to negotiating with the banks: it encompasses an in-depth review of the business model, the cost structure, working capital and, in many cases, the composition of the shareholder base.

It is essential to distinguish it from operational or strategic restructuring, although the three dimensions are usually addressed simultaneously. Financial restructuring acts on liabilities and the capital structure; operational restructuring, on processes and efficiency; and strategic restructuring, on the business model and competitive positioning. A successful process integrates all three, as we detail in our analysis of strategic restructuring and of the options in a business crisis.

Foresight is the most decisive variable for success. Companies that start the process at the likelihood-of-insolvency stage have a 70–80% success rate in implementing their plans. Those that wait for actual insolvency usually end up in liquidation, destroying the value of their goodwill.

The three stages of insolvency and when to act

The reform of the Consolidated Text of the Spanish Insolvency Act (TRLC), driven by Directive (EU) 2019/1023 and consolidated in 2025, structures insolvency into three stages with very different strategic implications. Identifying which stage the company is at is the first step of any process.

Warning signs that must not be ignored

Financial deterioration rarely happens overnight: it sends signals. If your company meets three or more of these indicators, the room for manoeuvre is running out:

• Repeated breaches of bank covenants (breaking the agreed Net Debt/EBITDA or DSCR ratios).
• Inversion of the liability structure: reliance on short-term debt to finance long-term assets or operating losses — classic badly structured debt.
• EBITDA insufficient to cover interest (ICR below 1.5x).
• Structural cash strain: delaying payroll, VAT/withholdings or key suppliers to close the month.
• Scissors effect in working capital: working capital requirements growing well above sales, devouring liquidity in stock and receivables. Controlling working capital is decisive here.
• Net equity eroded by accumulated losses (legal ground for dissolution, art. 363 of the Spanish Companies Act).
• Days sales outstanding (DSO) above 80 days or rising defaults.
• Risk concentration: loss of customers accounting for more than 20% of gross margin.

Key metrics for the financial diagnosis

A rigorous diagnosis requires quantitative analysis. The fundamental ratios are Net Debt/EBITDA (critical if it exceeds 4–5x in non-defensive sectors), the current ratio (critical if < 1.0x), the ICR (critical if < 1.5x) and, above all, the DSCR (Debt Service Coverage Ratio), which measures the real capacity to repay debt service:

DSCR = (EBITDA − Taxes − Maintenance CAPEX) / (Principal repayments + Interest). If the result is below 1.0x, the company is burning cash through its activity and is mathematically unable to pay its loans without external refinancing.

The diagnosis is completed with a 13-week cash flow forecast — the standard in stress situations — which makes it possible to visualise the "break week" (the exact moment cash turns negative) and to prioritise payments by operational-continuity criteria. All of this is consolidated in an IBR (Independent Business Review), prepared by an independent third party, which is the credential of maximum trust before the banks.

Phases of the financial restructuring process

1. Comprehensive financial diagnosis and IBR. An X-ray of the banking pool, working capital requirements and contingent liabilities (guarantees, litigation). The IBR separates a cyclical liquidity problem (maturities) from structural insolvency (haircuts or operational restructuring).
2. Stress-scenario modelling. A 5-year model with base, upside and downside scenarios. Proposals to creditors are always designed on the stress scenario to guarantee compliance.
3. Design of the viability plan. Financial, commercial, personnel and operational measures, with particular attention to the treatment of public-law debt.
4. Strategic negotiation. The central phase: parallel negotiations with financial and trade creditors, backed by the IBR and the restructuring expert.
5. Court approval and implementation. If the plan obtains the required majorities, it is approved by the court so that its effects extend to dissenters. The cram-down can be activated here (see below).
6. Monitoring and continuous adjustment. A financial dashboard with liquidity KPIs and monthly reports to the committee and key creditors.

Financial and operational tools of the plan

Restructuring of financial liabilities

Haircuts (write-off of part of the principal) and deferrals (extension of maturities and grace periods) relieve immediate cash pressure. A debt-to-equity swap converts loans into shares: it cleans up the balance sheet immediately, although it dilutes the historical shareholders, and is ideal for profitable operating businesses suffocated by an unrecoverable burden of historical debt.

The cram-down mechanism (class cram-down) deserves a detailed explanation as one of the greatest legal innovations: it allows a plan approved by certain classes of creditors (for example, secured financial creditors) to be imposed by the judge on other dissenting classes — and even on shareholders who oppose a capital increase — provided the plan respects the absolute priority rule and guarantees that creditors receive more value than in a liquidation. It is the tool that prevents a minority from blocking the rescue of a viable company.

The insolvency pre-pack makes it possible to prepare the sale of a business unit before declaring formal insolvency, so that the judge authorises it almost immediately, preserving goodwill. It is a typical transaction in the sale of companies in crisis (distressed M&A).

ATTENTION — Public-law debt (tax authorities and Social Security): public-law claims enjoy an extreme privilege under article 616 bis of the TRLC. They cannot be subject to haircuts in preventive restructuring plans and their deferrals are limited to periods of 6 to 18 months after court approval. Any plan that does not provide for full payment of public-law debt within those periods will be challenged by the authorities, causing the process to fail.

Capital injection and restructuring

Capital increases with strategic partners (private equity, family offices, industrial partners) provide liquidity and credibility before the banking pool. The "accordion" operation — a capital reduction to zero or below the legal minimum to absorb accumulated losses, simultaneously linked to an immediate capital increase — cleans up the balance sheet in one go and is one of the most powerful corporate tools for turning around a company with negative net equity.

Divestment of non-strategic assets (property, subsidiaries, brands) generates immediate liquidity to repay expensive debt. When the asset is a property in use, a sale & leaseback transaction makes it possible to monetise it without losing its use; in groups with several companies, the analysis of non-operating assets and liabilities identifies what can be sold without damaging the business.

Operational measures to improve cash generation

The cheapest liquidity is that generated by internal operations through working capital management: reducing the average collection period, optimising inventories and, above all, implementing factoring and reverse factoring (confirming) (non-recourse factoring to accelerate collection from solvent customers; reverse factoring to negotiate terms with suppliers). In parallel, renegotiating leases and deferring non-critical CAPEX release cash immediately.

The financial restructuring expert and the value of the adviser

The reform of the TRLC introduced the figure of the restructuring expert: an independent professional who facilitates negotiation between debtor and creditors. Unlike the insolvency administrator, they do not take control of management, but act as a technical mediator. Their involvement is mandatory when a stay of individual enforcement actions is requested, when the plan provides for a cram-down or when creditors holding more than 50% of the affected liabilities request it.

Beyond the regulated figure, the involvement of a specialised financial adviser — a fractional CFO with experience in special situations — is the differentiating factor: they prepare the IBR that gives credibility before risk committees, build the financial model, lead the multilateral negotiations, connect with alternative financing (direct lending, distressed funds) and act as a firewall against creditor pressure, allowing the management team to concentrate on running the business.

Beyond the regulated figure, the involvement of a specialised financial adviser is the most decisive differentiating factor in the process:

• Preparation of the IBR that generates credibility before bank risk committees.
• Construction of the financial model and business plan that underpins the negotiations.
• Professional management of simultaneous negotiations with multiple institutions.
• Identification of financing alternatives or investors the in-house team does not consider.
• Acting as a buffer between the business owner and creditor pressure, allowing the management team to focus on running the business.

At the negotiating table, the company should not present itself as a debtor begging for clemency, but as a partner offering a viable business plan. The IBR and a reputable expert are the best credentials for obtaining favourable terms.

Advantages of restructuring

• It allows the company to recover financial viability.
• It protects the interests of creditors and employees.
• It seeks to avoid liquidation or bankruptcy.

Conclusion

Financial restructuring is a highly complex exercise that goes beyond accounting. Companies that come through it successfully share three features: they anticipate the problem before it becomes irreversible, they transform their operations as well as renegotiating debt, and they surround themselves with specialised advisers who bring technical credibility before creditors. Cases such as Grupo Dia or Codere show that, with transparent negotiation and deep operational restructuring, it is possible to reverse apparently terminal situations.

Does your company need a financial restructuring? At Maraz Corporate Finance we are experts in debt restructuring and refinancing for middle-market companies. Every process is tailor-made; contact our team to analyse your situation in the strictest confidence.

Javier de Rojas Roca de Togores

Partner - Maraz Corporate Finance

Frequently asked questions about corporate financial restructuring

When should a company consider a financial restructuring?

The sooner the better. The ideal moment is the "likelihood of insolvency" phase — up to two years ahead — when there is still room for negotiation and control remains 100% in the debtor's hands. Companies that act at this stage have a 70-80% success rate. Signs that should set off the alarm: covenant breaches, an interest coverage ratio below 1.5x, working capital requirements growing faster than sales or recurring cash strain at month-end. Waiting for actual insolvency drastically reduces the options and usually ends in liquidation.

What is cram-down or class cram-down?

It is a mechanism under the Spanish Insolvency Act (TRLC) that allows the judge to impose a restructuring plan on classes of creditors (or even on shareholders) that oppose it, provided the plan has been approved by the statutory majorities, respects the absolute priority rule and guarantees that dissenters receive more value than they would obtain in a liquidation. Its purpose is to prevent a minority from blocking the rescue of a viable company. It is one of the most significant innovations of the insolvency reform and requires very careful technical design of the creditor classes.

Can the tax authorities accept a haircut on my debt in a restructuring?

Not in preventive restructuring plans. Public-law claims (Tax Agency and Social Security) enjoy an extreme privilege under article 616 bis of the TRLC: they cannot be subject to haircuts and their deferrals are limited to 6 to 18 months after court approval. Any viability plan that does not provide for full payment of public debt within those periods will be challenged by the authorities. That is why it is essential to size this obligation correctly from the very first moment of designing the plan.

What is the difference between a refinancing and a restructuring?

Refinancing is a tool within restructuring, not a synonym. Refinancing means renegotiating the terms of the debt (maturities, rates, grace periods) while keeping the business structure. Restructuring is a broader process that, in addition to debt, can act on equity (capitalisation, accordion operation, entry of new shareholders), on assets (divestments, sale & leaseback) and on operations (working capital, costs). A refinancing solves a liquidity problem; a restructuring also addresses structural insolvency.

What is an IBR and why do banks ask for one?

An IBR (Independent Business Review) is a report prepared by an independent adviser that analyses the viability of the business, validates the projections and diagnoses whether the problem is one of liquidity or of structural solvency. Banks and funds demand it because it gives them an objective, credible view — not the debtor's own — on which to base their decision to support the plan or not. A well-prepared IBR greatly speeds up negotiations: it turns a conversation of mistrust into a technical negotiation over verified data.