Restructuring Support Agreement Definition: What You Need to Know
A restructuring support agreement (RSA) is a legal document that outlines the terms and conditions of a financial restructuring. It is a vital tool for companies undergoing a financial restructuring, providing a framework for negotiations between the company and its creditors.
The purpose of an RSA is to provide a roadmap for the restructuring process. It defines the roles and responsibilities of all parties involved, including lenders, stakeholders, and the company itself. It sets out the terms of the restructuring, including the amount of debt that will be written off, and the terms under which new debt will be issued.
An RSA typically includes a number of key provisions, including:
– Debt write-off: This is a critical aspect of any restructuring, and the RSA will spell out the amount of debt that will be written off. Creditors will typically agree to write off a portion of the outstanding debt in exchange for new debt or equity in the company.
– New financing: The RSA will specify the terms under which new debt or equity will be issued to the company. This may include covenants that the company must meet, such as maintaining a certain level of profitability or limiting executive compensation.
– Governance: The RSA may include provisions related to the governance of the company, such as the appointment of new board members or the establishment of a creditor committee.
– Exit strategy: The RSA will outline the conditions under which the company can exit the restructuring process. This may include conditions such as meeting certain financial targets or obtaining regulatory approvals.
Restructuring support agreements are complex documents that require careful drafting and negotiation. They are typically prepared by experienced legal professionals and reviewed by all parties involved in the restructuring. As such, it is important for companies to engage with legal counsel early in the restructuring process to ensure that the RSA is properly structured.
In conclusion, a restructuring support agreement is a critical component of any financial restructuring. It provides a framework for negotiations between the company and its creditors, and sets out the terms and conditions of the restructuring. Companies undergoing a financial restructuring should engage with legal professionals to ensure that the RSA is properly drafted and negotiated.