Corporate Refinancing is based on converting the existing debts into a new debt instrument. This is done by paying off the existing debt obligations through new debt instrument. It can include the issuing of a company’s common shares in order to pay off a certain amount of debt. A company’s debt obligations are either replaced by the funds that are raised by creating new debt instruments or are payed off.
Benefits of Corporate Refinancing
The need for refinancing will arise in the case if the company fails to meet its current debt obligations and if it wants to restructure the current debt arrangement. Restructuring the existing terms of a debt arrangement refers to extending the tenure and lowering the interest rates of a debt. By converting the short term loans into long term debts helps the company to have more of the working capital and also helps in improving the cash flow.
Another event of Corporate Refinancing may be at the time when the interest rates have declined in the market. This allows a company to reduce the overall cost of debt. One way of doing this is by redeeming the callable bonds and then issuing them again at a lower rate of interest.
The benefit of corporate refinancing is to lower the interest rate and to increase the time limit. Thus , making it possible for the company to have more working capital in hand. But if the company is unable to pay old debts does it means the lender is getting some share in the new debt obligation?
Corporate refinancing is a good way to restructure the debt obligations that a company has. If and when the interest rates fall then the company can decide to go in for longer tenures of the loan with lesser interest rates. The author did a good job of explaining the concept as I’m quite new to to the big , bad world of finance.
The company has a whole range of financial instruments to its disposal and it can benefit from them, as long as the people running the company have the knowledge and a proper sense of good timing. Articles like this one absolutely help with gaining additional knowledge and can make an opportunity if offered help is properly accepted.