Short- and Long-term Debt Restructuring through Equivalent Equations: The Case of a Company in the Services Sector

Arturo Garcia-Santillan, Andrew Howe, Francisco Venegas-Martinez
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Abstract


This article presents a model for debt renegotiation for a company in the services sector. The motivation stems from reviewing the forecast cash flows for the years 2017 and 2018, which evidence illiquidity of the company for settling the promissory notes signed with its raw materials supplier. Within those two years are the maturities of 17 promissory notes, which the company sought to restructure into a new payment scheme to avoid the forecast illiquidity.
The equivalent equations technique was used to design a restructured series of debt payments that ensured equitable repayment to the creditor, spread over a longer time period. Most importantly, the restructured series of payments relaxed the stress on the debtor’s cash flow, such that forecast liquidity was greatly improved.


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