Key takeaways
- A borrower that is more than 90 days overdue is classed as having a non-performing loan. The best time to act is before that point.
- Refinancing pays off when the savings exceed the total costs within the remaining life of the debt. In the example, a 0.75% interest reduction on THB 500 m of debt pays back in about 3.3 years.
- A successful restructuring needs a real funding plan, not just a request for more time.
Separating the three issues
| Refinance | Waiver or amendment | Debt Restructuring | |
|---|---|---|---|
| Status | Performing | Close to or just after a breach | Unable to pay as originally agreed |
| Objective | Reduce cost, extend the tenor, release equity | Fix specific terms | Change the obligations so they can actually be paid |
| Bargaining power | High | Moderate | Low |
When to refinance
- Market interest rates have fallen significantly
- You need a longer loan tenor
- Releasing equity from assets that already generate income
- You want to change the covenants or collateral
- Switching from a construction loan to post-completion finance once the project is finished
Example THB 500 m of debt, new interest rate 0.75% lower. Figures in THB million
| Prepayment Fee 1.5% | 7.50 |
| Upfront fee on the new facility, 0.75% | 3.75 |
| Legal, valuation and documentation (assumed) | 1.00 |
| Mortgage registration fee, capped at THB 200,000 | 0.20 |
| Total cost | 12.45 |
| Annual interest saving, 0.75% × 500 | 3.75 |
| Payback | 3.3 years |
If you keep the debt for another 3 years, the net result is a loss of THB 1.2 m. If you keep it for 5 years, the benefit is THB 6.3 m. A simple rule is that payback should be within 2–3 years; if it is longer, there must be other reasons, such as the loan tenor or covenants.
Signs it is time to talk to the bank
- The 13-week forecast shows a cash shortfall in a debt repayment period
- Covenant headroom is entering the alert zone
- Transfers are slower than planned or the cancellation rate is rising
- Payments to contractors or the Revenue Department are overdue
- Short-term facilities are starting to be used to pay long-term obligations
- There is disagreement among shareholders about a capital increase
Why the 90-day line matters
Commercial banks generally classify a loan as non-performing or in default when principal or interest is more than 90 days overdue, and may classify it as impaired on qualitative criteria even earlier. Under TFRS 9, a significant increase in credit risk is usually presumed once payments are more than 30 days overdue. Once a loan has been classified, the lender's options narrow and raising new money from other sources becomes harder.
- Before a breach Request a waiver or amendment, supported by figures and a plan
- Before 30 days overdue Negotiate a revised schedule, extend the grace period or inject additional equity
- Before 90 days overdue Formally restructure, or sell assets to reduce debt
- After that Enforcement of collateral or court proceedings. Few options and a long timeline
Restructuring tools
| Tools | Use when | What you must show |
|---|---|---|
| Extending the loan tenor | Cash is coming in, but later than planned | A new transfer or revenue schedule |
| Extending the grace period or a temporary payment holiday | Construction is delayed | A new programme of works and the funds to complete |
| Reducing the interest rate | The interest burden is temporarily beyond the project's capacity | Actual cash flow |
| Reducing the principal | Rarely seen | A comparison with the enforcement value of the collateral |
| Debt-to-equity conversion | The debt structure is beyond the borrower's capacity | Post-restructuring value and governance |
| Selling assets or splitting into phases | You need to reduce debt immediately | Target price, mortgage release and timing |
| Refinancing with a new lender | The loan is not yet an NPL and the collateral is sufficient | Repayment history and a credible forecast |
The bank's perspective
Banks usually prefer restructuring to enforcing collateral, because enforcement takes many years and the amount recovered may be well below the outstanding debt. Figures commonly cited in practice are a recovery of about 30–50% over 2–5 years, which are estimates that vary with the collateral. The borrower's plan must therefore show that the bank recovers more than it would through enforcement.
What the plan must answer
- What caused the problem, and when will it end?
- Who is providing the new money, how much, and before or after the creditors agree to relief?
- How much funding is needed for the remaining work so that the project can be sold and transferred?
- What the alternatives will be if the plan fails
- The signatures required from all creditors, and the effect of cross-default
Where there are multiple creditors
Prepare a consolidated debt schedule showing ranking, collateral, cross-default provisions and maturity dates. Paying one creditor first while in difficulty may have legal or contractual consequences, so have a lawyer review it beforehand. Trade creditors such as contractors must also be included in the plan, because if work stops, the value of everyone's collateral falls.
Business rehabilitation as another route
Thai bankruptcy law provides a business rehabilitation process for limited companies, public limited companies or other specified juristic persons. The published criteria are that the debtor is insolvent, owes debts of not less than THB 10 million, has reasonable grounds and a feasible path to rehabilitation, and files the petition in good faith. The minimum thresholds have been proposed for amendment in the past, so check the latest law with a lawyer. The process carries a heavy burden in terms of time and confidence, so it should be used when out-of-court negotiation has failed.
Asking for new terms before problems arise is not a sign of weakness but of financial discipline. A CFO who informs the bank in advance with a plan usually obtains better terms than one who lets the bank find out from a missed payment.