Debt restructuring is a process that allows a private or public company, or sovereign entity facing cash flow issues to reduce and renegotiate its delinquent debts so they can improve and restore liquidity. Debt restructuring helps these organizations who are in financial distress rehabilitate so they can continue their operations. They also use it to avoid default on existing debt or take advantage of lower interest rates. Many times a company will issue callable bonds which allow them to readily restructure debt in the future. (A callable bond is redeemed by the issue prior to its maturity.) Then the existing debt is called and replaced with new debt at a lower interest rate. Another way companies can restructure their debt is by altering the terms and provisions of the existing debt issue.

Restructuring debt is similar to a refinance of debt. The difference is that refinancing occurs when the entity is not under financial issues. This restructuring process can be done at the direction of a judge or through out of court proceedings. The main goal is that the company ends up doing better than before and many organizations do return stronger and better than ever as a result.

Debt mediation is a smaller scale type of restructuring, and this process is typically better for businesses where the annual revenues are $5 million or less. Just like debt restructuring, debt mediation is a business to business action, and is in a different realm than debt reduction for individuals.