Debt restructuring
Debt restructuring in Panama
A company rarely has a debt problem. It has a mismatch between what it generates and what it has to pay. The difference matters, because it decides whether the answer is renegotiating terms or changing the business.
DB Consultants Group prepares and leads restructurings of financial liabilities with Panamanian banks, on the company’s side of the table.
The moment
The signals that appear before a default
Almost no company goes from current to overdue overnight. The warnings show up months earlier, and they show up in the numbers long before they show up at the bank.
- Cash covers operations but not amortisation. Interest gets paid and principal gets refinanced, again and again.
- Short-term credit is funding long-term assets. Revolving lines that never come down to zero are structural debt wearing a working-capital label.
- Suppliers are stretched to cover the bank instalment. That debt costs more than the bank’s, even though no rate is written on it.
- Covenants are breached or waived every quarter. A waiver is a warning, not a solution.
- Each renewal costs more and demands more collateral. The bank is already pricing a risk the company has not yet acknowledged.
A company that sits down with its bank while still current negotiates terms. One that sits down after the first default negotiates consequences.
The context
Why refinancing in Panama is harder now
The Panamanian economy is growing, but credit is not following. GDP is up 4.8% year on year while credit to the private sector grows by just 0.58%, below inflation. Banks did not stop lending; they became selective. Full reading from our Observatory (in Spanish).
On top of that, the country lost its investment grade rating at Fitch in March 2024, which made financing more expensive along the whole chain. What it means for a company (in Spanish).
The practical consequence is simple: the same file that was approved three years ago is sent back today. Not because the company is worse, but because the standard of evidence has risen.
Sources: Instituto Nacional de Estadística y Censo and Superintendencia de Bancos de Panamá.
The process
How a restructuring is run
- DiagnosisThe full map of liabilities is laid out: creditors, balances, rates, maturities, collateral, personal guarantees and covenants. More often than you would expect, the company has never had that picture on a single page.
- Cash flow modelCash is projected month by month to establish how much the business can actually pay, and when. That number, not the wish, is what shapes the proposal.
- Designing the proposalGrace period, extended maturities, consolidation of lines, moving short-term debt to long-term, new collateral or a shareholder contribution. It is almost always a combination, not a single measure.
- The file for the bankFinancial statements, projections, assumptions, sensitivity analysis and an action plan, in the format and at the level of detail a credit committee expects.
- NegotiationThe proposal is presented and defended before the bank, or before several creditors at once, so that none of them improves its position at the expense of the others.
- Follow-upCompliance with the new schedule is monitored, and any assumption that drifts is flagged early. Credibility won at the table is kept or lost in the six months that follow.
A restructuring with a single bank is resolved in two to three months. With several creditors and cross-collateral, four to eight.
What the credit committee looks at
The file that actually gets approved
Demonstrated capacity to pay
Cash projected month by month, with explicit assumptions and scenarios. Not an accounting profit and not a sales promise.
An explanation of what happened
The bank needs to understand what caused the deterioration and why it will not repeat. A restructuring without a diagnosis is a postponement.
Commitment from the shareholders
A capital contribution, subordination of shareholder loans or a cap on dividends. It is the signal that carries the most weight and the one least often offered upfront.
Collateral in order
Current appraisals, clean title and a collateral-to-balance ratio the committee can defend internally.
Warnings
What turns a fixable situation into a worse one
- Waiting for the default. Before arrears you negotiate a schedule; afterwards, a recovery.
- Negotiating bank by bank. Each creditor improves its collateral at the next one’s expense and the company ends up with a worse map than it started with.
- Presenting optimistic projections. A plan that misses its first quarter closes the door on the second conversation.
- Funding debt with suppliers. It moves the problem into operations and damages relationships the company will need later.
- Not addressing the cause. If the margin is not there, extending maturities only moves the problem somewhere else.
Common questions
Frequently asked questions
When is the right time to start restructuring?
When cash still covers interest but no longer covers principal without refinancing. At that point the company is still current and negotiates terms; after the first default the conversation changes completely.
How long does a restructuring take?
With a single bank, two to three months. With several creditors and cross-collateral, four to eight, because they all have to be coordinated at once.
Does the firm negotiate with the bank on the company’s behalf?
The firm prepares the file, designs the proposal and supports the negotiation. The company always decides and signs; the adviser’s role is to make sure it arrives with the evidence a credit committee needs.
Is a capital contribution required for approval?
Not always, but some shareholder commitment — a contribution, subordination of shareholder loans or a cap on dividends — is the signal that weighs most in a committee.
Can several banks be restructured at the same time?
Yes, and it is usually the only way it works. Negotiating separately lets each creditor improve its position against the others and leaves the company worse off than at the start.
What if the business no longer has a margin?
Then it is not a debt problem. Extending maturities only postpones the decision: the operation has to be reviewed, and sometimes the way out is selling a business line or the company. The firm also supports that alternative.
Does the firm work in English?
Yes. Reports, models and meetings can be delivered in English or in Spanish. The file for a Panamanian bank is submitted in Spanish, which is what the credit committee works in, and the version for the shareholder or the parent company is delivered in English.
Is the engagement confidential?
Yes. The nature of every engagement is confidential and is not disclosed without the client’s written authorisation.
Let’s talk before it becomes urgent
A first conversation is enough to tell whether what you have is a mismatch, a margin problem or a structural one. It is confidential and commits you to nothing.