TALK TO EXPERTS - 22
factors that led to languishing of the Road projects, one is attributed to
Corporate Debt restructuring that has been affected in many SPV debts.
who is unable to service debt makes a proposal to the lenders to restructure
debt. To understand at least at a minimum level, we have to look into two
integral components of the proposal; they are corporate debt restructuring
(CDR) and Special Purpose Vehicle (SPV).
Corporate Debt Restructuring (CDR)?
It is a
mechanism when the financial institutions and the banks which have lent the
money to a concessionaire come together and reorganize the debts of the
concessionaire in such a way that they protect their money and find it
expedient to support the concessionaire with some more financial assistance to
continue with the work.
corporate or a concessionaire finds himself up to the neck in financial
difficulties; with the result, he is not able to service debt to his lenders,
the financial institutions and the banks.
Reasons for the financial crisis may be beyond his control and
sometimes, they may be internal as well. The lenders do not get their dues for
a long period. In effect, the lenders have to face losses, that is, the money
that must come to them in time does not come to them or comes to them very
irregularly all the time with some dues entailing. Clearance of dues lags much
In case, a
concessionaire has credit facilities in more than one institution, all the
lenders, both financial institutions and the banks come together to form a
forum. Their aim is to revive the business so that they too get their share of
dues in time. First of all, they assess whether the business is viable. If the
business model of the concessionaire is found viable, they proceed to
restructure the debt load. They
restructure payment-schedule in such a way that the borrower, the
concessionaire gets some breathing space for payments. Depending on the
viability of the business condition, the banks and the other lending financial
institutions may even consider it fit to support the concessionaire with some
additional loan to stabilize the business. All these activities form the part
of the Corporate Debt Restructuring. The important aim of the banks and other
institutions that engage themselves in CDR is taking all possible positive
steps to get their money back by helping the viable concessionaire.
We will see in
our next session the other fact: Special Purpose Vehicle.