Financial distress

Insolvency
Insolvency processes
Administration Bankruptcy Chapter 7 (US) CVA Conservatorship Examinership IVA Liquidation Provisional liquidation Receivership
Officials
Insolvency practitioner Liquidator Referee in Bankruptcy Trustee in bankruptcy
Claimants
Creditor Preferential creditor Secured creditor Unsecured creditor
Restructuring
Chapter 11 (US) Cram down Restructuring Scheme of arrangement
Avoidance regimes
Fraudulent conveyance Undervalue transaction Unfair preference Voidable floating charge
Offences
Fraudulent trading Misfeasance Trading while insolvent Wrongful trading
Security
Floating charge Lien Mortgage Second lien loan Security interest
International
Chapter 15 (US) Cross-border insolvency EC Insolvency Regulation UNCITRAL Model Law
By country
Australia BVI Canada Cayman China Hong Kong Ireland Russia Switzerland UK USA
Other
Anti-deprivation rule Bankruptcy alternatives Creditor's rights Debtor Default Financial distress History of bankruptcy law Pari passu Pre-packaged insolvency Sovereign default Subordination

Financial distress is a term in corporate finance used to indicate a condition when promises to creditors of a company are broken or honored with difficulty. If financial distress cannot be relieved, it can lead to bankruptcy. Financial distress is usually associated with some costs to the company; these are known as costs of financial distress.

Cost of financial distress

A common example of a cost of financial distress are bankruptcy costs. These direct costs include auditors' fees, legal fees, management fees and other payments. Cost of financial distress can occur even if bankruptcy is avoided (indirect costs).

Financial distress in companies requires management attention and might lead to reduced attention on the operations of the company.

Another source of indirect costs of financial distress are higher costs of capital as usually banks increase the interest rates if a state of financial distress occurs.

Options for relieving financial distress

If high debt burden is the cause of financial distress, the company can undergo a debt restructuring. If operational issues are the reason for the distress, the company can negotiate a payment holiday with its creditors and improve operations to be able to service its debt.

External links

Corporate finance and investment banking

Capital structure

Transactions
(terms / conditions)

Equity offerings	At-the-market offering Book building Bookrunner Corporate spin-off Equity carve-out Follow-on offering Greenshoe Reverse Initial public offering Private placement Public offering Rights issue Seasoned equity offering Secondary market offering Underwriting

Mergers and acquisitions	Buy side Control premium Demerger Divestment Drag-along right Management due diligence Managerial entrenchment Minority discount Pitch book Pre-emption right Proxy fight Post-merger integration Sell side Shareholder rights plan Special situation Squeeze out Staggered board of directors Stock swap Super-majority amendment Tag-along right Takeover Reverse Tender offer

Leverage	Debt restructuring Debtor-in-possession financing Financial sponsor Leveraged buyout Leveraged recapitalization High-yield debt Private equity Project finance

Valuation

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