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There is no universal recipe for taking care of problematic assets in banks. Countries have different legal systems and different traditions and these can weigh heavily on the ultimate solution adopted. Additionally, sources and availability of funding and/or required speed of deleveraging can have a material impact on the solution or results achieved. Nevertheless, a number of important principles have turned out to be valid in most jurisdictions and some of them are presented in brief below.
make:
The bank’s in-house restructuring department makes the workout of the distressed debt
itself. Therefore, it requires the necessary knowledge and expertise in form of human capital
buy:
The lending financial institution buys the competency for the loan workout. A form of this
option is a joint venture structure in which the bank acquires or co-operates with the
relevant skills, experience and capacities for the debt servicing.
- sell:
In a true or synthetic sale transaction the entire portfolio is transferred to investors, which
are mainly opportunity funds or investment banks. This option also encompasses the
transfer of the distressed debt to an external (private or public) servicing platform as well
as the sale of the loans portfolio to a bad bank.
Institutions holding nonperforming loans in their portfolios may choose to sell them to other investors in order to get rid of risky assets and clean up their balance sheets. Sales of nonperforming loans must be carefully considered since they can have numerous financial implications, including affecting the company's profit and loss, and tax situations.
Through WACC CALCULATION YOU CAN IDENTIFY BEST CAPITAL STRUCTURE , any way normally high debt ratio or portion is good for above situation when intrest rate is low
