The role of Investment Banks in post-crisis restructuring

A changing economic landscape

Economic crises—whether triggered by financial shocks, health emergencies like COVID-19, or geopolitical tensions—inevitably leave behind a weakened corporate landscape. In the aftermath, many businesses find themselves struggling with excessive debt, declining profitability, and lost competitiveness. To avoid bankruptcy and ensure long-term survival, they must rethink their financial and operational structures.

This is where investment banks play a crucial role. As strategic advisors, they guide businesses through complex restructuring processes, providing financial solutions and orchestrating refinancing, asset sales, and creditor negotiations. In this article, we examine how these institutions facilitate critical transformations and why their expertise is more vital than ever in the post-crisis era.

1. A Pressured economic environment: why is restructuring essential?

Post-crisis periods are often marked by heightened volatility and intense pressure on businesses. Several factors make restructuring necessary:

• High levels of debt: Many companies have accumulated significant debt to weather crises. With rising interest rates, servicing this debt has become unsustainable for some.

• Declining profitability: Increasing costs (raw materials, energy, wages) combined with sluggish demand squeeze margins and threaten financial viability.

• Structural market shifts: Some industries are undergoing rapid transformations, forcing businesses to adapt their models or risk obsolescence (e.g., energy transition, digitalisation).

In this context, investment banks help businesses restructure their capital, optimise their balance sheets, and regain a sustainable growth trajectory.

2. The different types of restructuring and the key role of Investment Banks

2.1. Financial restructuring: reducing the debt burden

Managing debt is one of the biggest challenges in post-crisis restructuring. An overleveraged company risks a credit rating downgrade, making future financing more difficult. Investment banks assist in several ways:

• Debt renegotiation with creditors: They facilitate discussions between the company and its creditors (banks, debt funds, bondholders) to restructure repayment schedules, reduce principal amounts, or convert debt into equity.

• Refinancing and sourcing new investors: They help secure fresh capital, often by restructuring the company’s financing through bond issuances or capital increases.

• Hybrid financing structures: Instruments such as mezzanine debt or convertible bonds provide liquidity while limiting shareholder dilution.

2.2. Operational restructuring: strategic refocusing and asset sales

When a company struggles to regain profitability, it may need to streamline operations or sell assets to focus on its core business. Investment banks play a central role in these processes:

• Strategic analysis and business model redefinition: They advise executives on which activities to retain or divest to maximise profitability and competitiveness.

• Asset or subsidiary sales: They identify potential buyers and structure transactions to optimise valuation, payment terms, and guarantees.

• Joint ventures or strategic partnerships: In some cases, rather than a straightforward sale, banks recommend alliances to share costs and risks.

2.3. Capital restructuring: attracting new investors

Successful restructuring often involves a reconfiguration of ownership. Investment banks facilitate the entry of new investors, whether private equity funds, strategic buyers, or existing shareholders seeking to increase their stake. They organise:

• Capital increases to recapitalise the company

• Buyouts (MBOs, LBOs) to revitalise businesses under new leadership

• Stock market listings to diversify funding sources

3. The challenges and risks of restructuring: a delicate mission

While investment banks play a vital role, their work comes with significant challenges:

• Aligning stakeholders with conflicting interests: Shareholders, creditors, executives, and employees often have differing priorities, making consensus difficult.

• Managing communication and reputation: Restructuring can create uncertainty among clients, suppliers, and employees. Strategic communication is essential to protect the company’s image.

• Navigating regulatory and legal constraints: Some restructurings involve complex negotiations with regulators (e.g., competition authorities, commercial courts in insolvency cases).

4. Case studies: successful restructuring examples

Case 1: Debt restructuring saves an industrial Firm An automotive company, weakened by the semiconductor shortage, was struggling under excessive debt. An investment bank led negotiations with creditors, securing a repayment extension and a capital injection from a private equity fund, allowing the firm to stabilise and resume operations.

Case 2: Strategic subsidiary sale to refinance the parent company A European technology group in financial distress sold one of its profitable subsidiaries to a US buyer. This transaction, structured by an investment bank, helped restore the group’s finances and ensure the survival of its other business lines.

Case 3: A Turnaround via an LBO A struggling conglomerate with ineffective governance underwent a leveraged buyout (LBO) led by an investment bank. The deal redefined the company’s strategy and provided a fresh start under a new management team.

More valuable than ever in a post-crisis world

In an economic landscape marked by crisis cycles and rapid transformation, investment banks are central to corporate restructuring. By facilitating financing, negotiating with creditors, and identifying strategic opportunities, they help businesses navigate turbulence and regain stability.

As economic uncertainty persists, their expertise will remain a critical asset in supporting corporate transitions and ensuring the resilience of the broader economy.