What is a disadvantage of restructuring financial obligations?

Restructuring financial obligations often involves complexities and negotiations that can create reticence among lenders to increase their exposure to the distressed company. When a company is undergoing restructuring, it typically indicates financial distress, which makes lenders cautious about extending additional credit or providing further investment. They may fear that the financial situation of the company is too risky, particularly if it has previously demonstrated an inability to meet its obligations.

In the context of restructuring, lenders are primarily concerned with minimizing their risk and recovering their investment rather than increasing it, which can lead to higher barriers for the company to secure new financing or support. This hesitation can significantly complicate the restructuring process and hinder efforts to stabilize and improve the financial health of the company in distress.

The other options do not accurately reflect the nature of restructuring financial obligations. For example, restructuring does not inherently guarantee profit for shareholders or a higher valuation immediately; instead, it may take time to realize improvements. Additionally, third-party involvement is often a necessity in these processes, but it is not universally viewed as a disadvantage—acting as intermediaries can sometimes help facilitate positive outcomes.