Purpose
Evaluate the full menu of financial restructuring options against a company's actual capital structure and cash-flow trajectory, scoring each on feasibility, creditor impact, dilution, and time to execution — so the CFO or advisor walks away with a ranked, sequenced recommendation rather than a list of theoretical possibilities.
When to Use
Invoke this skill when the user asks to:
- Evaluate restructuring options for a company facing liquidity pressure or a covenant breach
- Decide between refinancing, renegotiating covenants, swapping debt for equity, selling assets, or raising equity
- Prepare for a maturity wall or an upcoming debt cliff
- Assess how to reduce leverage while a business stabilizes declining EBITDA
- Build a board or lender-facing case for a specific restructuring path
- Sequence multiple restructuring levers when no single option solves the problem
Inputs Required
Before starting, collect:
- Balance sheet snapshot: Total debt, cash, equity, and major asset categories (with book/estimated market values where known)
- Debt maturity profile: Each tranche — instrument type, principal, maturity date, coupon, secured/unsecured, key covenants
- EBITDA trajectory: Trailing 12-month EBITDA plus a forward view (next 12–24 months, base case and stressed if available)
- Liquidity position: Current cash, available revolver capacity, and monthly cash burn or generation
- Trigger event: What forces the decision — covenant breach, maturity, missed payment risk, or proactive deleveraging
- Ownership and control constraints: Current cap table, sponsor/PE involvement, any dilution or control thresholds that matter
- Creditor landscape: Who the lenders are, relationship quality, and any known appetite (or lack thereof) for amendments
If forward EBITDA or market asset values are missing, use conservative estimates and flag every assumption explicitly.
Instructions
Step 1: Establish the Problem and the Constraint
Before evaluating options, quantify the gap the restructuring must close.
- Leverage position: Calculate net debt / EBITDA and interest coverage (EBITDA / interest expense). Compare to covenant thresholds.
- The binding constraint: Identify which of these is the actual crisis — a liquidity gap (cash runs out), a covenant breach (technical default), a maturity wall (can't refinance), or an insolvency risk (liabilities exceed viable enterprise value).
- The number to solve for: State the specific figure — e.g., "$40M of debt must be removed to restore 3.5x leverage," or "$12M liquidity bridge needed to reach the maturity date." Every option is later judged against this number.
- Runway: How many months until the trigger becomes terminal. This caps which options are even viable by execution time.
Step 2: Score Each Option on the Four-Factor Framework
Evaluate all five options against the same rubric. Score each factor Low / Medium / High with one-line reasoning grounded in this company's numbers.
Scoring dimensions:
- Feasibility: Likelihood of executing given creditor appetite, market conditions, asset quality, and equity availability. Higher = more achievable.
- Creditor impact: Severity of the hit to lenders (recovery, priority, relationship). Frame as favorable/neutral/adverse to creditors — lower creditor pain generally means easier execution.
- Dilution: Ownership impact on existing equity holders. Higher = more dilutive.
- Time to execution: Realistic timeline to close. Rate as Fast (<8 weeks) / Moderate (2–4 months) / Slow (4+ months).
Option 1 — Debt-for-Equity Swap Convert a portion of debt into equity, deleveraging the balance sheet without cash outlay.
- Best when: over-levered but with a viable operating business; creditors prefer equity upside to a low-recovery liquidation.
- Quantify: how much debt converts, resulting pro-forma leverage, and post-swap ownership split.
- Feasibility hinges on creditor willingness to hold equity and a credible enterprise value. Highly dilutive by nature; time to execution moderate-to-slow (negotiation-heavy).
Option 2 — Covenant Renegotiation (Amend & Extend / Waiver) Reset or waive covenants, extend maturities, adjust pricing — buying time without changing the capital structure.
- Best when: the business is fundamentally sound but temporarily out of covenant compliance, and lenders are relationship-oriented.
- Quantify: which covenant is breached and by how much; what headroom the amendment needs to provide.
- Typically fastest and least dilutive, but usually carries amendment fees, higher spread, or tightened terms. Feasibility depends heavily on lender relationship quality.
Option 3 — Refinancing Replace existing debt with new debt on better terms or a longer tenor, often addressing a maturity wall.
- Best when: credit markets are open to the profile and the business can service new debt at prevailing rates.
- Quantify: new coverage ratio at current market rates, and whether the maturity is genuinely pushed out.
- Feasibility is market-dependent (rates, sector sentiment). Low dilution; time to execution moderate. Fails if leverage or EBITDA won't support new lender underwriting.
Option 4 — Asset Disposal Sell non-core assets, divisions, or real estate to raise cash and pay down debt.
- Best when: identifiable non-core or over-collateralized assets exist with a real buyer market.
- Quantify: estimated net proceeds (market value less transaction costs and any secured claims), and resulting leverage reduction.
- Feasibility depends on asset saleability and secured lender consent. Low dilution but time to execution is often slow (sale processes take months); factor in fire-sale discounts under time pressure.
Option 5 — Equity Injection Raise fresh equity from existing sponsors, new investors, or a rights issue.
- Best when: the business has a credible turnaround plan and an investor willing to fund it, or a supportive sponsor.
- Quantify: amount needed, implied pre-money valuation, and dilution to existing holders.
- Most dilutive to current equity; feasibility hinges on investor appetite and valuation acceptance. Time to execution ranges fast (sponsor top-up) to slow (external raise). Strongest signal of confidence to creditors.
Step 3: Build the Comparison Scorecard
Assemble a table with options as rows and the four factors as columns, each cell showing the Low/Med/High rating plus a compressed rationale. Add a final column: Debt/liquidity gap closed — how much of the Step 1 target each option resolves on its own.
Step 4: Test Combinations and Sequencing
Rarely does one option fully solve the problem. Evaluate the two or three most viable combinations:
- Bridge-then-fix: covenant waiver now (buys time) → asset disposal or refinancing later (structural fix).
- Deleverage stack: partial debt-for-equity swap + equity injection to hit the target leverage.
- Note dependencies — e.g., refinancing may require a covenant reset first, or an equity injection may be the precondition lenders demand before agreeing to an amendment.
Step 5: Recommend and Sequence
Deliver an opinionated recommendation:
- Primary path: the option or combination that best closes the gap within the runway. State why.
- Sequencing: the order of moves with rough timing, and what each step must achieve to unlock the next.
- Fallback: the contingency if the primary path stalls (e.g., lender rejects the amendment).
- Red lines: the dilution ceiling, minimum recovery, or control threshold that must not be crossed.
Output Format
- Structure: Problem framing → per-option analysis → comparison scorecard table → combinations → ranked recommendation with sequencing
- Length: 1,100–1,500 words
- Format: Structured document with one scorecard table; per-option analysis in labeled blocks; recommendation in prose
- Sections: Problem & Binding Constraint → Five Option Analyses → Comparison Scorecard → Combination & Sequencing Options → Recommendation, Fallback & Red Lines
- Tone: Restructuring advisor to the board — precise, numbers-first, decisive; no hedging on the final recommendation
Quality Checklist
Before delivering output, verify:
- [ ] The binding constraint and the specific gap-to-close figure are stated numerically in Step 1
- [ ] All five options are scored on all four factors (Feasibility, Creditor impact, Dilution, Time to execution) — 20 ratings total
- [ ] Every rating includes a one-line rationale tied to this company's numbers, not generic theory
- [ ] The scorecard table shows how much of the target gap each option closes on its own
- [ ] At least two combination/sequencing paths are evaluated with dependencies noted
- [ ] A single primary recommendation is made, with explicit fallback and red-line thresholds
Notes
- Covenant renegotiation is almost always the fastest lever and worth pursuing first to buy runway — but it treats the symptom, not the leverage, so it rarely stands alone.
- Asset values under time pressure are not book values; apply a fire-sale discount whenever the runway is short and flag it.
- Creditor relationship quality is often the single biggest determinant of feasibility — a supportive lender group turns a slow, adversarial process into a fast amendment.
- If enterprise value appears to fall below total debt, note that an out-of-court restructuring may not be viable and a formal process (Chapter 11 / scheme of arrangement) should be evaluated separately.
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