Many companies globally are saddled with excessive levels of debt. This can lead to financial distress. In The Financial Restructuring Tool Set: How to Fix Your Broken Balance Sheet, Mike Harmon provides an indispensable guide tailored for executives, business owners, boards of directors, creditors, advisors, and investors grappling with financial distress. He equips stakeholders with an invaluable tool kit for mending a company’s fractured balance sheet while demystifying complex techniques and explaining restructuring methods in an accessible fashion. In this Q&A, Harmon offers insight into some of the key takeaways of his book.

Q: What exactly is “financial restructuring”?

Mike Harmon: “Corporate restructuring” more broadly refers to the process of renegotiating a business enterprise’s key contracts for rehabilitation and value enhancement. This can be operational restructuring, which relates to a company’s operating contracts, or financial restructuring, which focuses on a company’s financing arrangements. Restructuring processes also can differ depending on whether a company is healthy or distressed. Healthy companies tend to restructure to increase shareholder value, whereas distressed companies do so to preserve the value of their business enterprise. This book specifically concentrates on financial restructuring for distressed companies. It focuses on a set of fifteen tools, some for use within bankruptcy court and some outside of it, that troubled companies and their key stakeholders can use to fix their broken balance sheets.

Q: Who would benefit from reading this book?

Harmon: Many executives and investors believe that they are immune to making mistakes. The reality is that all business decisions—even the best ones—carry some probability of adverse outcomes. When companies face such outcomes while using debt to finance their business, this can lead to financial distress. Executives, business owners, boards of directors, creditors, advisors, and investors who expect to interact with financially leveraged companies could benefit from this book. It serves as both a playbook for navigating distress when it arises and a guide for “structuring right” to avoid getting into distress in the first place. Additionally, I believe this book will be a valuable training tool for professional restructuring firms, enabling them to educate their clients and junior professionals.

Q: What are some recent trends concerning restructuring activity?

Harmon: Over the last fifteen years, companies globally have raised record amounts of risky debt. As interest rates have moved higher, this debt has created a sort of “tinder box” for restructuring activity. As a result, both in-court and out-of-court restructuring activity has been on the rise.

Q: What are some of the most critical issues facing companies pursuing financial restructuring these days?

Harmon: Over time, corporate debt agreements have become significantly more lenient for issuing companies thanks to the commoditization of capital. This has allowed many businesses to steer clear of bankruptcy. While this may seem like a good thing, it is a double-edged sword. Outside of bankruptcy court, companies lack strong mechanisms to significantly reduce their debt levels. As a result, many manage to avoid bankruptcy but fail to adequately fix their broken balance sheets. They plod on as “zombie” companies, and their excessive debt prevents them from making essential investments for future growth or attracting the resources required to execute their business strategy effectively. Paradoxically, many of these companies delay entering bankruptcy in the short term, but by not addressing their underlying financial issues, they ultimately destroy value and end up in bankruptcy anyway.

Q: What might be the most surprising takeaway for readers when they read your book?

Harmon: People tend to think of bankruptcy as the “death” of a business. In some cases, it is. But for a viable business, the bankruptcy process provides tools that a debtor company can use to rehabilitate itself and ultimately grow, creating a lot of value in the process.

Q: This book reads like a “how-to” guide, but it also seems to share some elements with those of a textbook. Is that a fair assessment?

Harmon: That is fair. In fact, I plan to use it as a textbook in my classroom!