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The planned special funds for defence and infrastructure, along with increasing government spending and debt in EU countries, have led to a rise in interest rates. These higher interest rates are (increasingly) causing problems for companies when it comes to financing. Businesses with moderate credit ratings are particularly affected, as their risk spread further increases their interest costs.
Restructuring companies in an environment of elevated interest rates is a complex task that demands both strategic and operational considerations. High interest rates can substantially raise financing costs, which is especially problematic for companies with existing debt or those dependent on debt financing. In this scenario, it is important to consider various restructuring aspects to ensure a company’s long-term stability and competitiveness.
High interest rates typically lead to increased borrowing costs. Companies that depend on credit to fund investments or maintain their operations are faced with rising interest payments and difficulty in obtaining credit. This situation can lead to a reduction in liquidity and restrict a company’s ability to invest in growth and innovation. Furthermore, high interest rates can increase the risk of missed payments, especially for companies that are already experiencing financial difficulties.
In such an economic environment, restructuring may be necessary to ensure the financial health of a company. This can take various forms, including debt restructuring, optimization of operating procedures or adaptation of the business model. The aim is to reduce costs, increase efficiency and improve competitiveness.
a) Restructuring of liabilities
One of the first measures that companies should consider is debt restructuring. This can be done by negotiating with creditors to obtain more favourable terms, such as lower interest rates or extended maturities. In some cases, converting debt into equity might also be considered to reduce the interest burden and improve the balance sheet.
b) Cost management
Another important aspect of restructuring is cost management. Companies should carefully analyse their strategy and expenditure to identify areas where savings can be made. This can be done by optimizing processes, reducing headcount or negotiating better terms with suppliers. The aim is to reduce operating costs in order to increase profitability.
c) Diversification and innovation
In times of major changes, challenges and/or high interest rates, it may also make sense to diversify or modify the business model or explore new markets. Companies should assess whether they can expand their product range or offer new services to tap into new revenue streams. Innovation can be a key to competitiveness, especially in a rapidly evolving market environment.
Executive Management plays a crucial role in the successful implementation of restructuring measures. Managers must develop, formulate and communicate a clear vision and strategy to guide the company through the challenges posed by high interest rates. Additionally, preparing for difficult times – such as through stress scenarios – on both the product and market sides is essential. Open communication with employees and stakeholders is also important to build trust and gain support for the necessary changes.
In many cases, it can be helpful to bring in external consultants or financial experts to support the restructuring process. These experts can provide valuable insights and experience that help to make informed decisions and facilitate the implementation of necessary measures. This is particularly important because external parties often recognize corporate crises earlier than the management itself. Reflecting on past crises such as the COVID-19 pandemic, supply chain disruptions and rising energy prices, difficulties are frequently attributed to external crises. However, insufficient attention is often given to the company’s own (strategic) shortcomings.
Restructuring companies is a major challenge in difficult economic times. Identifying weaknesses and optimizing processes is a complex but necessary task that requires careful planning and implementation. High interest rates add to the challenges.
This certificate course will provide you with the knowledge and first practical insights into how to identify and assess the current risk situation of a company with the help of an assessment matrix.
In the Professional Restructuring & Turnaround certificate course, you will learn how to identify and assess the current risk situation of a company.
The planned special funds for defence and infrastructure, along with increasing government spending and debt in EU countries, have led to a rise in interest rates. These higher interest rates are (increasingly) causing problems for companies when it comes to financing. Businesses with moderate credit ratings are particularly affected, as their risk spread further increases their interest costs.
Restructuring companies in an environment of elevated interest rates is a complex task that demands both strategic and operational considerations. High interest rates can substantially raise financing costs, which is especially problematic for companies with existing debt or those dependent on debt financing. In this scenario, it is important to consider various restructuring aspects to ensure a company’s long-term stability and competitiveness.
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