Table of Contents SN Contents Pg No 1 Membership of CDR System 1 2 Time Frame for Processing and Implementation of Restructuring Schemes 1 3 Scrutiny before CDR Reference/Approval 3 4 Financial Viability Parameters: Benchmark Levels 4 5 Category I & II under CDR System 5 6 Eligibility Criteria: Cases of BIFR & Wilful Defaulters 6 7 Borrower Classification for stipulation of Standard Terms & Conditions 8 8 Decision process in CDR System 9 9 Holding on operations 12 10 Monitoring Mechanism 14 11 Sharing of Securities 18 12 Conversion of Debt into Equity 20 13 Additional Finance and Sharing thereof 22 14 Payment Parity 28 15 TRA: Treatment for Interest on WC and Term Loan (TL/WCTL/FITL) 29 16 Prudential & Accounting Issues 30 17 Prepayment of Restructured Debt 32 18 Recompense Clause 33 19 OTS/Assignment of Debts 41 20 Revocation of Restructuring Scheme/Legal Action for Recovery 45 21 Re-workout/Re-entry in CDR 45 22 Exit of Cases from CDR System 48 23 Annexure I: Financial Viability Parameters 49 24 Annexure–II: BIFR Cases: Eligibility Criteria, Financial Viability Parameters and Procedural Aspects 55 25 Annexure–III: Cases of Wilful Defaulters: Eligibility criteria, Financial Viability Parameters and Procedural 58
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Table of Contents
SN Contents Pg No
1 Membership of CDR System 1
2 Time Frame for Processing and Implementation of Restructuring Schemes
meeting cash losses, VRS/Statutory payments, clearance of pressing
creditors and long term margin for fresh WC etc. These are essential
for achieving the projected cash flow for viability of a package.
(iii) Need Based Working Capital - Assessment, Sanction and
Disbursement:
a) Lenders taking up additional WC would be allowed priority
recovery equivalent amount of FITL/WCTL (as principal amount of WC
does not get recovery unlike Term Loan).
b) Lenders within super majority to consider need-based finance
whenever it approves the final restructuring proposal. The respective
Referring Institution (RI) should specify the pro-rata sharing of
additional finance by the lenders in the final restructuring package.
c) Lenders to sanction and release need-based working capital
without adding any onerous condition thereto/making it contingent on
some happenings, once it is approved by CDR EG.
d) While deciding the water-fall mechanism in the operations of
TRA, Term Loan installments of working capital lenders would get
priority to the extent of additional working capital facilities extended
by them, in case there is no outstanding balance of WCTL & FITL.
(iv) Assessment of Need Based Working Capital and factoring of the same
in Final Restructuring Package: The guiding principles for assessing
and factoring of Need Based Working Capital (WC) in the Final
Restructuring Package are as under:
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(a)At the time of admission of the Flash Report, the company should
submit CMA data to lead working capital banker (or the banker having
highest exposure in WC limits in case of multiple banking
arrangement) for expediting the assessment of WC limits before
preparation of the Final Report.
(b)The assessment of WC should not be delayed on account of the
non-availability of the latest audited financials. If latest audited
statements are not available, WC should be based on
provisional/unaudited financials.
(c) WC limits so assessed should be incorporated in the Final Report
and should be extended by all the CDR lenders in proportion to their
outstanding as on the date of reference to CDR mechanism.
(d)In case of multiple banking arrangements, it should be mandatory
to form consortium at the time of CDR stage itself.
(e)The lender should sanction their share of WC limits without waiting
for sanction of the share of WC limits by other lenders.
(f) In respect of release of WC limits, a definite time frame should be
decided for tie-up of funds by all the lenders as per package.
(g)In case enhancement in WC limits by a lender is not possible on
account of prudential exposure norms, an alternate tie-up arrangement
should be decided at the time of Final Report itself.
(h)Where asset classification is subsequently upgraded on account of
satisfactory performance, the lead WC lender (or individual WC lenders
under multiple banking arrangements) should reassess/release the WC
requirement (sharing of the same being decided by WC
consortium/CDR EG) within a period of three months after the up-
gradation of the account. The lender may consider sanction of
enhanced WC limits even at market related rate.
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(i) The other Commercial Banks, which had extended only Term Loans,
may be persuaded to share enhanced WC requirement, to the extent
possible. Alternatively, they may be persuaded to provide short-term
loan/corporate loan to shore up Networking Capital.
(j) The WC lenders while sanctioning their share of WC limits should
not add any conditions beyond the conditions deliberated and
approved by CDR EG.
(k)On carving out of WCTL, the WC limits should not be restored to
earlier limits, but should be sanctioned/released as per the fresh
assessment of WC.
It may be noted that in case there arises any conflict between these
guiding principles and RBI Guidelines, RBI guidelines shall prevail.
(v) Need based WC for first year should be assessed and incorporated in
CDR package.
a) Lenders to give commitment for need based WC limits for the
second year of operations.
b) Even though commitment of need based WC for the second year
will be given at the time of final package, actual assessment and
disbursement to be based on assessment by lead bank/MI upon
satisfactory compliance of terms of package by the borrower.
c) If 75% tie-up of assessed WC limits is in place, then lenders who
have already sanctioned their respective share in WC may release their
limits instead of waiting for 100% tie up.
d) Lenders failing to sanction/disburse WC facilities will not get TRA
benefits till release of their respective share of WC limits.
e) Enforcement mechanism as per Section 13 of ICA to be imposed
on lenders who do not follow CDR guidelines in regard to
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sanction and disbursement of WC needs within a period of two months
from the receipt of assessment note from lead bank.
(vi) Priority in repayment should be given to additional finance provider,
both the TL/WC over the existing lenders in TRA as per CDR policy on
priority. If additional finance involves enhancement in regular WC
limits, the same could be given in the form of short term loan (STL) by
institutions/lenders such as IFCI, IDFC, etc., which are not in a position
to offer regular WC limits due to the nature of their business. However,
redemption of such STL would be done by the company by arranging
for replacement finance.
(vii) Security support to WCTL/FITL of banks by way of pari-passu first
charge on fixed assets should be made available as per current CDR
guidelines. However, EG may be given flexibility on deciding of the
same on case-to-case basis with 100% agreement of all members for
variation, if any.
(viii)In case of additional exposure in the form of non-fund based facilities
as enhancement for the first year, the same would be shared by all
CDR lenders involved in the package, on pro-rata or risk and revenue
sharing basis.
(ix) Exit option by RBI
(a) In Category-I CDR cases, the creditor, (outside the minimum 75%
of value and 60% in number) for any internal reason, does not wish to
commit additional finance, then such creditor can either (a) arrange for
its share of additional finance to be provided by a new or existing
creditor, or (b) agree to the deferment of the first year’s interest due to
it after the CDR package becomes effective. The first year’s deferred
interest as mentioned above, without compounding, will be payable
with the last installment of the principal due to the creditor.
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(b) In addition, the exit option will also be available to all lenders
within the minimum 75 percent and 60 percent provided the purchaser
agrees to abide by restructuring package approved by the Empowered
Group. The exiting lenders may be allowed to continue with their
existing level of exposure to the borrower provided they tie up with
either the existing lenders or fresh lenders taking up their share of
additional finance.
(c) The lenders who wish to exit from the package would have the
option to sell their existing share to either the existing lenders or fresh
lenders, at an appropriate price, which would be decided mutually
between the exiting lender and the taking over lender. The new
lenders shall rank on par with the existing lenders for repayment and
servicing of the dues since they have taken over the existing dues to
the exiting lender.
(d) In order to bring more flexibility in the exit option, One Time
Settlement can also be considered, wherever necessary, as a part of
the restructuring package. If an account with any creditor is subjected
to One Time Settlement (OTS) by a borrower before its reference to the
CDR mechanism, any fulfilled commitments under such OTS may not
be reversed under the restructured package. Further payment
commitments of the borrower arising out of such OTS may be factored
into the restructuring package.
13.2 Actual Working capital (WC) irregularity as on Cut-off date only should
be carved out by the respective banks into Working Capital Term Loan
(WCTL) and not on pro-rata basis. Individual aberration pertaining to
WC irregularity subsequent to Cut-off date, would be dealt with by the
individual bank separately. In respect of WC irregularity due to LC
devolvement and/or invocation of BG on account of specific reasons,
CDR Empowered Group would take a view based on the extant
guidelines.
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13.3 The approach for priority for additional finance under CDR would be as
under:
(i) Superior status will be accorded to any fresh assistance extended to
the corporate as part of the package towards minimum required
capital expenditure, pressing creditors, VRS, etc.
(ii) In the case of WCTL and FITL (past & future) of working capital, priority
claim will be limited to the extent of fresh working capital exposure
envisaged at the time of approval of the package. In case fresh
sanction/release of WC is more than WCTL component then priority will
be limited to WCTL/FITL component.
(iii) Unutilized sanction of working capital will not qualify for preferential
claim.
(iv) Any enhancement in WC pursuant to CDR package as a part of need-
based assessment will be considered as additional finance and enjoy
priority as mentioned above. Further, WC servicing will have priority in
TRA as per the waterfall mechanism in case pooling of fixed/current
assets is not envisaged. Wherever such pooling is involved, the cash
flow will be shared equitably.
(v) There have been cases of expansion/modernization and plans of future
capital expenditure not envisaged in the original package. These plans
are normally in the nature of improving viability, stabilizing the cash
flow, making the corporate more competitive and overall reducing the
risk for lenders. Some such schemes involve application of existing
cash accruals as margin for capital expenditure with the approval of
EG.
Whenever Category-II CDR cases, where sharing of additional
assistance is not mandatory, come up with expansion plans then
negotiated priority in cash flow in favour of new lenders may be
justifiable to attract them. EG may, therefore, consider giving priority
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on a case-to-case basis and, if justified, on the basis of its need for
continuing viability of the package and improving possibility of
acceleration of payments, etc. The EG may also take into consideration
the need for attracting new set of lenders, specially for Category- II
CDR cases.
(vi) Replacement financing raised by companies for OTS with existing
lenders would qualify the new lenders to step in the shoes of the
existing lenders. Accordingly, if original lenders’ debt did not have
priority status then the new lenders also will not get it. EG may,
therefore, accord priority status in cash flow in different ways in
different circumstances specially where dealing with BIFR/doubtful
cases or cases where fresh investment by strategic/stressed funds is
envisaged.
14. PAYMENT PARITY
14.1 The extent of recovery of dues from the borrowers before the date of
reference to CDR has been a contentious issue. While lenders who are
not able to recover as much as others, generally demand that the
package be prepared in such a way that parity was brought about with
such lenders who had recovered higher dues before the date of
reference to CDR, the lenders who had recovered higher dues, feel that
this would act as a disincentive for efficient recoveries by some
lenders. Taking into account the fact that it would not be practicable to
re-open the issue of past recoveries made by some lenders and to
bring all lenders at par before restructuring, any disproportionate
recoveries after the date of reference only shall be corrected in such a
way that all the lenders are at par.
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15. TRA: TREATMENT FOR INTEREST ON WC AND TERM LOAN
(TL/WCTL/FITL) – TREATMENT IN TRA
15.1 Extent of recovery of dues from the cash flow in the TRA has been an
issue between the lenders. Interest on the working capital is paid first
as the same is treated as part of operational expenses. In normal
times, both WC lenders and term lenders get their interest payments.
However, in case of shortfall in cash flow, the term lenders do not get
any payment. In order to take care of such concerns, the following
approach should be adopted:
(i) In all existing and future cases, where pooling of security covering
TL/WCTL/FITL and entire WC (FB/NFB limits) is being implemented/will
be implemented and security will be shared pari passu on all fixed
assets and current assets, then cash flow shall be shared equitably for
payment of interest on WC and TL/WCTL/FITL.
(ii) In all existing and future cases, where such pooling of security is not
envisaged (i.e. WC- FB/NFB- is secured by current assets and
TL/WCTL/FITL is secured by fixed assets separately), the present
system i.e. priority for payment of interest on WC, followed by interest
on TL/WCTL/FITL in TRA waterfall, shall continue.
15.2 Opening of Pre-TRA & TRA account should be expedited in all CDR
cases. It should be operational within one month from the approval of
the case. In case TRA arrangement is not created/working properly, the
TRA account should be shifted to the next largest banker within 3
months of becoming aware of the problem.
16. PRUDENTIAL & ACCOUNTING ISSUES
16.1 As per RBI guidelines, the regulatory concession in asset classification
and provisioning will be available if there is compliance of six
conditions stipulated in RBI guidelines viz.
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(i) The dues to the bank are ‘fully secured’. The condition of being fully
secured by tangible security will not be applicable in case of
infrastructure projects, provided the cash flows generated from these
projects are adequate for repayment of advance, the financing banks
have in place an appropriate mechanism to escrow the cash flows, and
also have a clear and legal first claim on these cash flows.
Fully secured: When the amounts due to a bank (present value of
principal and interest receivable as per restructured loan terms) are
fully covered by the value of security, duly charged in its favour in
respect of those dues, the bank's dues are considered to be fully
secured. While assessing the realisable value of security, primary as
well as collateral securities would be reckoned, provided such
securities are tangible securities and are not in intangible form like
guarantee etc., of the promoter/others. However, for this purpose the
bank guarantees, State Government Guarantees and Central
Government Guarantees will be treated on par with tangible security.
(ii) The unit becomes viable in 10 years, if it is engaged in infrastructure
activities and in 7 years in the case of other units.
(iii) The repayment period of the restructured advance including
moratorium period, if any, doesn’t not exceed 15 years in the case of
infrastructure advances and 10 years in the case of other advances.
(iv) Promoter’s sacrifice and additional funds brought by them should be
minimum of 15% of the banks’ sacrifice.
(v) Personal Guarantee is offered by the promoter except when the unit is
affected by the external factors pertaining to the economy and
industry,
(vi) The restructuring under consideration is not a repeated restructuring.
(vii) Repeatedly restructured accounts: When a bank restructures an
account a second (or more) time(s), the account will be considered as
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a ‘repeatedly restructured account’. However, if the second
restructuring takes place after the period upto which the concessions
were extended under the terms of the first restructuring, that account
shall not be reckoned as a ‘repeatedly restructured account’.
16.2 Promoters’ sacrifice would be governed by the following guiding
principles: Promoters' sacrifice and additional funds brought by them
should be a minimum of 15% of banks' sacrifice. The term 'bank's
sacrifice' means the amount of "erosion in the fair value of the
advance", to be computed as per the methodology enumerated in RBI
Master Circular.
(i) Sacrifices of lenders should be computed from the cut-off date in the
package.
(ii) Promoters' sacrifice and additional funds brought by them should be a
minimum of 15% of banks' sacrifice. Margin towards additional
working capital should be in addition to stipulated promoters’
contribution.
(iii) 50% of 15% of sacrifices of lenders should be brought up-front by the
promoters.
(iv) Balance 50% should also be brought within one year.
As per RBI Master Circular dated July 2, 2012:
a) The promoter's sacrifice and additional funds required to be
brought in by the promoters should generally be brought in upfront.
However, if banks are convinced that the promoters face genuine
difficulty in bringing their share of the sacrifice immediately and need
some extension of time to fulfill their commitments, the promoters
could be allowed to bring in 50% of their sacrifice, i.e. 50% of 15%,
upfront and the balance within a period of one year.
b) However, in case the promoters fail to bring in their balance
share of sacrifice within the extended time limit of one year, the asset
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classification benefits derived by banks will cease to accrue and the
banks will have to revert to classifying such accounts as per the asset
classification norms specified under para 11.2 of this circular.
c) Promoter’s contribution need not necessarily be brought in cash
and can be brought in the form of de-rating of equity, conversion of
unsecured loan brought by the promoter into equity and interest free
loans.
(v) Reduction in value of equity from the face value of equity capital owing
to de-rating would be treated as sacrifice.
(vi) Dilution of equity shareholding will not be treated as sacrifice.
(vii) Promoters’ contribution could be also by way of unsecured loans
arranged by promoters. However, such unsecured loans should be
subordinated to CDR lenders’ dues for payment of interest and
repayment of principal. Rate of interest and other terms on such
unsecured loans should be approved by CDR EG.
17. PREPAYMENT OF RESTRUCTURED DEBT
17.1 Some of the corporates whose liabilities are restructured under the
CDR Mechanism, may turn around faster than envisaged and may be in
a position to contract loans from outside the existing CDR lenders at
lower rates and may be in a position to prepay the existing debts in
part or full. The following criteria should, therefore, be adopted for
prepayment under CDR:
(i) Prepayment of debt in part or full shall be on the basis of mutual
agreement and subject to approval of CDR EG.
(ii) In case of part-prepayment, the same shall be made to all lenders and
in respect of all loans (including WCTL, FITL) on pro-rata basis,
irrespective of the interest rate.
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(iii) Such prepayment should be encouraged and prepayment penalty
should not be charged in CDR approved cases whether it is
OTS/Negotiated Settlement (NS); or it is at the instance of lenders
pursuant to acceleration clause.
18. RECOMPENSE CLAUSE
The guidelines related to Recompense were issued vide circular No
1/2009-10 dated March 26, 2010.
18.1 Ordinarily, every package under the CDR involves waivers and scarifies
on the part of lenders. It is also the practice under CDR to stipulate a
standard Recompense clause in the restructuring package. The
guidelines issued by RBI clearly envisage the right of recompense
based on the certain performance criteria.
For the purpose of the guidelines, ‘Recompense’ means recouping,
whether fully or partially, the sacrifice made by the lenders as also
waivers/concessions/reliefs given by the CDR Lenders to the borrower
pursuant to the approved CDR package.
18.2 Elements eligible for computation of recompense:
The following items of waivers, sacrifices, concessions etc. pursuant to
the restructuring package will be eligible for computation of
recompense amount:
18.2.1 Reduction in Rate of Interest: Any reduction in the rate of
interest applicable to the borrower will be reckoned for computation of
recompense.
18.2.2 Funding of Interest at lower rate of Interest: In case the
rate of interest on Funded Interest Term Loan (FITL) as per CDR
package is lower than the rate of interest applicable to the borrower
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for principal loan, sacrifice on account of the differential rate will be
reckoned for computation of recompense.
18.2.3 Conversion of principal/interest dues into non-convertible
debt instruments: In case, principal/interest dues are converted into
non-convertible debt instrument and the interest rate/yield on that
debt instrument is lower than the rate of interest applicable to the
borrower for principal loan (i.e. the unconverted liability), sacrifice on
account of the differential rate will be reckoned for computation of
recompense.
18.2.4 Waiver of principal/interest dues: Any waiver of
principal/interest dues as per CDR package will be reckoned for
computation of recompense.
18.2.5 Conversion into WCTL: In case rate of interest on WCTL as per
CDR package is lower than the rate of interest applicable to the
borrower for principal loan, sacrifice on account of differential rate will
be reckoned for computation of recompense.
18.2.6 Additional Finance (both Term Loan and Working Capital):
In case rate of interest on additional finance as per CDR package is
lower than the rate of interest applicable to the borrower for the loan
(term loan or Working capital, as the case may be), sacrifice on
account of differential rate will be reckoned for computation of
recompense.
18.3 Elements ineligible of computation of recompense:
The following items shall not be taken into computation of recompense
amount:
18.3.1 Waiver of penal interest/liquidated damages: Waiver of
penal interest/ liquidated damages as on Cut-off date as per CDR
package will not be reckoned for computation of recompense.
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18.3.2 Sacrifices/waivers allowed prior to CDR restructuring: Any
sacrifices/waivers allowed by the lender(s) prior to CDR restructuring
will not be reckoned for computation of recompense under CDR
mechanism. Any undertaking given by the company to a lender for
recouping the sacrifices/waivers prior to CDR restructuring, will be
outside the purview of CDR system.
18.3.3 Conversion of debt into equity/convertible debt
instruments: In case part of principal or interest dues are converted
into equity/instruments convertible into equity at a future date, the
same will not be reckoned for computation of recompense.
However, if there is no upside i.e. increase in market value of shares
vis-à-vis the conversion price at which the debt was converted into
equity, the promoter should undertake to buy-back the shares so
allotted at the conversion price or reimburse/recompense for the loss
incurred on conversion into equity.
In case of optionally convertible instruments, recompense would
depend on conversion option exercised by the lender. If the lender
does not opt for conversion into equity, the treatment of the debt
instrument will be similar to ‘conversion into non-convertible
instrument’ as given at Para 2 (c) above
18.3.4 Reduction in LC/BG commission, etc.: Since charging of
commission on issuance of LCs and BGs is decided by the Working
Capital consortium, the recompense on reduction of commission will
not fall under purview of CDR. However, any reduction in commission
envisaged in the CDR restructuring package will be reckoned for
recompense computation.
18.4 Non-applicability of Recompense:
The recompense will not be applicable to following two instances:
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18.4.1 Withdrawal of the Package: In case of withdrawal of the
package (i.e. on account of unsatisfactory performance, non-
compliance of conditions, etc.), the recompense will not be triggered.
In such cases, the restructuring package is revoked and the lender
may take action against the company outside CDR forum.
18.4.2 One Time Settlement/Negotiated Settlement: In case of
OTS/NS, amount recoverable under OTS/NS is mutually decided by the
lender and the borrower and hence, the recompense will not be
applicable in such cases.
18.5 Trigger Events for Recompense:
The payment of recompense amount gets triggered in the following
circumstances:
18.5.1 Exit of the Case: The exit of the borrower from CDR
mechanism, either voluntarily or at the end of the restructuring period.
18.5.2 Improved Performance: Average EBIDTA for two consecutive
financial years is in excess of twenty-five percent of average EBIDTA of
the relevant years as per CDR projections. However, in case of
improved performance of a company under BIFR, recompense amount
will be collected only after the net worth becomes positive.
18.5.3 Declaration of Dividend: If the borrower declares dividend in
any financial year in excess of ten percent on annualized basis,
recompense will be triggered.
18.5.4 Capex: If the borrower desires to incur any capital expenditure
other than envisaged in the CDR restructuring package out of internal
accruals/issuance of equity and preference share capital, payment of
recompense will be triggered. However, certain essential capital
expenditure like exigencies on account of breakdown of machinery,
compliance of pollution control norms or other norms fixed by Govt.
/statutory authorities, etc. will not trigger recompense.
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18.5.5 Extra- Ordinary Income: - Any windfall profit or excess profit
derived from the sale of assets, divestment, success in litigation, etc
should also trigger the recompense clause and the quantum of
recompense amount should be linked to such amount received by the
company.
18.5.6 Liabilities of one of the lenders get refinanced by new
lender(s) at the instance of the company: - Right of recompense
would be protected only if the lender was forced to exit the company
without its consent.
18.6 Methodology of Computation of Recompense
Amount:
On the occurrence of any of the above mentioned trigger events, the
referring/monitoring institution shall convene a meeting of the
Monitoring Committee within a period of one month from the date of
occurrence on the trigger event to determine the quantum of the
recompense amount payable by the borrower till the trigger date. The
quantum of the recompense shall be decided as under:
Sr. No.
Concessions considered by lenders
Methodology of Recompense computation
i. Principal Waiver 100% of principal waiver should be recovered as recompense.
ii. Waiver of interest dues
100% of interest dues waived should be recovered as recompense.
iii. Reduction of interest rate on principal debt
Interest sacrifice should be considered as difference in interest as per CDR package and interest based on average of BPLR plus the appropriate term premium and credit risk premium of four major lenders (all, if the number of lenders is less than four) prevailing as at the end of each financial year (including broken period, if any) after the cut-off date or the document rate,
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whichever is lower.
iv. Conversion of debt into Debentures and Preference Shares
In case of conversion of principal outstanding/interest dues into debentures and preference shares, sacrifice in interest/coupon rate should be computed as per point (iii) above.
v. Conversion into FITL at lower rate of interest
Computation of interest sacrifice on FITL should be as per point (iii) above.
vi. Conversion into WCTL at lower rate of interest
Computation of interest sacrifice on WCTL should be as per point (iii) above.
vii. Reduction in commi-ssion on LGs/BGs.
Recompense on reduction in commission should be computed in cases where the restructuring package incorporates such reduction in commission.
viii. New loans at concessional interest
Only for new loans which were given at concessional rates and not on market rates could be considered for recompense on same lines as reduction in interest rates of point (iii) above.
The recompense amount calculated based on the above
methodology will be compounded at the average BPLR plus the
appropriate term premium and credit risk premium of four major
lenders or document rate, whichever is lower (as mentioned in point
(iii) above).
18.7 Recovery of Recompense Amount:
18.7.1 Based on the quantum of recompense determined as per Para 6
above, CDR EG shall decide the form in which recompense amount can
be recovered based on cash-flow of the company. Full amount of
recompense shall be recovered by way of cash to the extent of
Available Cash Surplus (defined at Para 7 (b) below) and balance
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amount shall be recovered in the form of debt instruments/equity or
other suitable instruments like preference shares, etc.
The debt instrument, issued towards recompense, can be unsecured to
avoid deterioration of FACR. The debt instrument shall carry
coupon/interest rate at BPLR of respective lender. The repayment of
debt instrument will be fixed by the CDR EG at the time of deciding
recompense. The individual lender may allow the company to prepay
such debt instrument on request of the company.
18.7.2 Available Cash Surplus:
Available Cash Surplus will decide the capability of the company to pay
recompense amount in cash. The Available Cash Surplus (for each
completed year of restructuring) will be calculated as under:
ParticularsFY20XX Actual
A. Cash Surplus from Operations
Net Profit After Tax
Add: Depreciation
Add: Miscellaneous Exp. W/off
Add: Interest funded during the year (FITL)*
Add/(Less): Deferred Tax Liabilities/(Assets)
B. Add: Cash Surplus from Investment Activity
Sale Proceeds of Investments/Fixed Assets
Less: Expenditure on Sale of these Assets
Less: Capex (as per CDR approved package)
Less: Essential Capex like exigencies on account of breakdown of machinery etc. [described under Para 5 (d)]
C. Less: Debt Servicing Obligations
Repayment of FITL
Repayment of Principal Instalments
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D. Changes in Working Capital/Cash Equivalents
Add/(less): Decrease/(Increase) in Current Assets
Add/(less): Increase/(decrease) in Current Liabilities
Total of Cash Surplus
* Since interest, though funded, is treated as expenditure in P & L
account of the borrower.
CDR EG would vet the changes in working capital/cash equivalents
while computing available cash surplus.
From the Cash Surplus as calculated above for each completed year of
restructuring (till the year of trigger event for recovery of
recompense), following deductions can be made to arrive at
AVAILABLE CASH SURPLUS for recompense:
(i) Margin requirement for incremental term loan for the next one year (as
per the CDR approved package);
(ii) Margin requirement for incremental working capital for the next one
year (as per the CDR approved package).
Lender-wise recompense will be computed based on the pro-rata share
of sacrifices by the respective lenders.
18.8 Post - trigger event:
On recovery of recompense amount as above, the CDR EG can reset
the interest rate to market related rate from the date of trigger event,
so that the recompense issue stands dispensed with therefrom.
For prospective cases, reset of interest rate shall be from the date of
trigger event, while for existing cases (on the date of issuance of this
guidelines) reset of interest rate shall be from the current date of
computation of recompense.
18.9 Other Related Issues:
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If the borrower delays the payment of recompense amount beyond the
time frame decided by CDR EG, it shall be liable to pay interest at the
BPLR of the lender concerned.
After recovery of recompense amount, the lenders shall not be eligible
to claim or recover any further amount from the borrower by way of
recompense up to that date.
In case company’s performance worsens subsequent to its exit by
payment of recompense, the company’s request for restructuring of its
debts can be considered by CDR EG on merits.
Recompense shall be crystallized on occurrence of trigger event and
subsequently on recovery of the recompense either in the form of cash
or debt instruments, the company will be treated as successfully exited
from CDR. However, till company continues under CDR, the lenders will
have Right of Recompense.
18.10Savings:
(i) These guidelines supercede the previous guidelines issued on this
subject.
(ii) The cases settled in the past on the basis of extant policy shall not be
reopened.
(iii) These guidelines shall apply to all cases pending for determination of
recompense amount.
The exceptional cases, like packages involving change in management
and/or any deviation from the above recompense policy, may be
referred to the Core Group.
19. OTS/ASSIGNMENT OF DEBTS
19.1 One Time Settlements (OTS)/Negotiated Settlements (NS)
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19.1.1 OTS/NS generally involve an element of waivers/scarifies for the
lenders in respect of their outstanding debt and basically means offers
given by the borrowers based on certain resource-raising programme
including equity issue, strategic investment, venture capital,
international offering etc.
19.1.2 Such OTS should preferably be completed within three years’
time without affecting other CDR payments.
19.1.3 EG may allow use of part of internal accruals for OTS on case-to-case
basis if such terms are attractive from other lenders’ point of view
specially with respect to asset coverage, improving margin for WC,
improved rating due to better balance sheet etc.
19.1.4 OTS for WC Banks should be available for both WC & TL.
However, WC banks, if they so desire, might continue with WC facility.
On completion of OTS, existing security (incl. collateral security)
charged to the outgoing CDR lenders, as also non-CDR lenders should
be given to the remaining CDR lenders. In such cases the company
may request for release of collateral which might be considered by
CDR EG based on conduct of the account/compliances of CDR package
etc. and the company should not transfer/assign/encumber them
without the prior approval of CDR EG.
19.1.5 As regards any security available with outgoing non-CDR lenders,
company should undertake that pursuant to OTS payment such
security would first be offered to CDR lenders and on completion of
OTS a specific request to EG could be made for its release.
19.1.6 There have been proposals where replacement financing is being
arranged from NBFCs, venture capital or External Commercial
Borrowings. In such cases, the new lenders will step into the shoes of
the outgoing lenders and, therefore, would get same security structure
and rights and obligations available under CDR package. Such new
46
lenders would get priority to the extent the debt so arranged is utilized
to meet additional fund requirement as per the CDR package.
However, the remaining debt arranged for replacing the existing
lenders may not be given priority. In cases where debt level in a
borrower account is very high, EG on a case-to-case basis, may
approve limited priority to such new lender provided replacement debt
is on better terms or there are other considerations such as
settlement/legal issues with non-CDR lenders, etc. As far as possible
such priority should be avoided.
19.1.7 OTS payments should be made out of TRA.
19.1.8 CDR EG should be informed of the terms of OTS to CDR members
as also non- CDR entities.
19.1.9 A lender shall not be compelled to accept OTS on the basis of a
super-majority decision.
19.1.10 During OTS payment, the case would compulsorily remain under
CDR and security position would not be disturbed. This would be
subject to eligibility criteria under CDR being complied and if exit of
case is not envisaged.
19.1.11 As every lender under CDR has a right to exit or accept OTS as per
the stipulated guidelines, such right need not be separately mentioned
in LOA issued by CDR Cell and any such proposal shall be approved by
EG on merits.
19.1.12 On the basis of intended OTS or proposed exit from CDR, no lender
should withhold sanction of the approved CDR package and sharing of
security, including pooling of security, if it is part of original package. In
case the incoming new lender is not comfortable then Master
Restructuring Agreeament (MRA) covering critical areas such as
management control, invocation of pledge of shares, shareholding
pattern and action in case of default need to be finalized. This is
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particularly relevant for clear understanding regarding co-existence of
the two sets of lenders for the success of the package.
19.2 ASSIGNMENT OF DEBT
19.2.1 Assignment of debt means transfer of debt at the option of
individual lenders.
19.2.2 Lender may transfer or assign, in part or the whole of its outstanding
Financial Assistance. However, if any Reference is made or any
Restructuring Scheme is under preparation and/or implementation,
such transfer or assignment shall be subject to following:
(a)The Lender (Transferor) giving a prior notice to the CDR Cell of the
proposed transfer.
(b)The Transferor informing the intended transferee in writing of the
current status of the Restructuring Scheme including any previously
decided issues not subject to renegotiation. Transfer should take place
before reference/admission of the case in CDR or only after four
months from the date of issuance of LOA by CDR Cell i.e. after
implementation of the package.
(c) On assignment, the transferee needs to give an undertaking to
abide by the package. The transferee would get the same
security/rights under the package as were available to the
transferor/assignor.
(d)In all cases, TRA should be executed in a time-bound manner with
transferee as per CDR package.
(e)In case of non-CDR members who are eligible but not joined CDR
system so far should get themselves admitted in the CDR System and
issue a letter of accession to this Agreement i.e. to execute transaction
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specific ICA or join the system in the form Part A or Part B provided in
Schedule-II, as may be required.
19.2.3 In case the assignment is in favour of a non-CDR member who at
present is not eligible to become a member of CDR. In addition to the
clause (a) to (d) as stated in Para 19.2.2, the following would be
applicable:
a. Any lender can assign/transfer debt to any entity who is, at
present, not eligible to join CDR.
b. It would be preferable if the incoming new entity executes
MRA as well, if applicable.
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20. REVOCATION OF RESTRUCTURING SCHEME/
LEGAL ACTION FOR RECOVERY
20.1 Any CDR lender before initiating action for revocation of restructuring
scheme/legal action for recovery in respect of CDR cases must inform
the CDR EG about the proposed action and if there is no response from
the CDR EG within a period of 60 days or if the limitation period is
about to expire (whichever is earlier), the concerned lender may
initiate action independently. However, for the sake of good order, the
concerned lender must give adequate notice to other participating
lenders as well as CDR Cell indicating the likely date of expiry of the
limitation period.
21. RE-WORKOUT/RE-ENTRY IN CDR
21.1 As per the revised RBI guidelines, regulatory benefits would be
available to CDR cases only if restructuring is done under CDR for the
first time and meets the following criteria
(i) The dues of the banks are fully secured by tangible security.
(ii) The unit becomes viable in 10 years if engaged infrastructure else 7
years
(iii) The repayments does not exceed 15 years in case of infrastructure
advances and 10 years in case of other advances
(iv) Promoters sacrifice and additional funds brought by them shall be
minimum 15% of banks sacrifice
(v) Personal Guarantee is offered by promoter
(vi) The restructuring is not repeated restructuring
21.2 RBI has advised the following policy guidelines applicable on second
restructuring/re-workout:
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Interest rate reduction
Reduction in rate of interest should be treated as second restructuring
for the purpose of application of prudential norms, even if it is
occasioned by decline in the cash flows of the borrowing unit done to
some policy amendment made by Government.
Realignment of interest rates in line with current interest rate regime
and market forces in cases of improved past performance would not be
treated as second restructuring, provided, it is objectively accounted
for and reflected in the improved rating of the borrower indicated as
under:
a) Where Interest rate fixed on the restructured loan is linked to
BPLR/Base Rate:
In case of restructured accounts where interest is linked to BPLR/Base
Rate (BR), original difference between the risk premium justified by the
rating and the premium actually charged may be maintained where
reduction of rate is warranted. For instance, if the rate justified by the
risk rating was BPLR + 5% and the borrower was charged BPLR + 2%
after first restructuring, the concession given is 3%. Now suppose the
improvement in prospects of the industry to which the unit belongs
improves the credit score of the borrower and the rating improves with
the result that the risk premium justified by the rating is reduced to
4%. In that case, the bank may lower the rate to BPLR + 1%, to
maintain the level of concession given by the bank/pass on the benefit
of industry wide reduction in the rate of interest to the borrower.
However, to qualify for above treatment, reduction in the rate should
be effected through revision in rating of the borrower as suggested
above, not independent of it as this would be necessary to distinguish
the reduction justified by industry wide reduction in the rate of interest
from any arbitrary reduction in the nature of further concession.
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b) Where rate of interest on the restructured loan is fixed:
In cases where rate of interest on restructured accounts is fixed, the
benefit of reduction in rate of interest without attracting provisions of
restructuring can be passed on to the borrower by notionally
converting the fixed rate being charged as per first restructuring into
BPLR + risk premium and applying the framework suggested above.
21.3 Re- schedulement of debt
All cases involving reschedulement/rephasement should be treated as
second restructuring, if such reschedulement/rephasement results in
reduction in the present value of the loan (principal + interest cash
flows), irrespective of whether the terminal date is postponed or not. If
the modification does not result in reduction in the present value of
principal + interest cash flows, it need not be treated as a second
restructuring, provided the advance continues to be fully secured.
21.4 Other variations
Any changes in the terms of restructuring which do not result in
reduction in the present value of the loan (principal plus interest cash
flows) or the advance being rendered partially/fully unsecured need
not be treated as second restructuring.
21.5 Considering the downturn in sugar industry, some policy guidelines of
second restructuring are relaxed by RBI. It is advised that the
restructuring of fresh credit facilities granted to a borrower would not
be considered “repeated restructuring” in the following circumstances:
a) Where a debt restructured under CDR mechanism in the past
stands fully repaid/settled, as per the terms of restructuring under CDR
mechanism;
b) Where the debt restructured earlier under CDR mechanism is not
the subject matter of second or subsequent restructuring and is also
being duly serviced as per the terms of the restructuring package.
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22. EXIT OF CASES FROM CDR SYSTEM
22.1 Criteria for Exit
1. After the end of the restructuring period, the borrower-Corporate
has to exit from the CDR System.
2. When the financial performance of the borrower-Corporate is more
than 25% of the EBIDTA projections for two consecutive years, it will
qualify for exit.
3. Any borrower-Corporate seeking exit from CDR should agree to
make payment of recompense amount as per CDR guidelines.
22.2 Procedure for Exit:
The procedure for consideration for exit would be as under:
1. On full repayment/refinance, the company may exit subject to
crystallization/payment of recompense amount.
2. In case of part prepayment, the same shall be made to all lenders
and in respect of all loans (including WCTL, FITL) on pro rata basis.
3. Prepayment in any other manner and invoking of recompense
amount shall be subject to the approval of CDR EG.
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Annexure – I
FINANCIAL VIABILITY PARAMETERS
(To be included in Final Restructuring Proposals)
1. Return on Capital Employed
1.1 The Return on Capital Employed (ROCE) reflects the earning capacity
of assets deployed. ROCE is expressed as a percentage of total
earnings (return) net of depreciation to the total capital employed.
‘Total Earnings’ is PBT plus total interest plus lease rentals.
1.2 ‘Capital Employed’ is the aggregate of net fixed assets excluding
capital work in progress, lease rentals payable, investments, and total
current assets less creditors and provisions.
1.3 Normally, intangible assets are excluded for calculation of ROCE.
Having regard to the fact that stressed standard assets as well as sub-
standard and doubtful assets are considered for restructuring, it may
be possible that fixed assets in such cases might be depreciated to a
large extent due to accounting practices although the facilities might
not have been utilized. Similarly, interest on loans accrued and fallen
due but not paid, might have been used to finance cash losses. In
other words, the fund is reinvested in the project. These normally get
reflected in accumulated loss, which is treated as intangible asset.
Therefore, while working out the total capital employed, suitable
adjustment may be made for unabsorbed depreciation and unserviced
interest to lenders.
1.4 A minimum ROCE equivalent to 5 year G-Sec plus 2% may be
considered as adequate.
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2. Debt Service Coverage Ratio
2.1 The Debt Service Coverage Ratio (DSCR) represents the debt servicing
capability of the borrower. In the normal course, DSCR is the ratio of
gross cash available to meet the debt-servicing requirement. Gross
cash available is the sum of gross cash accrual plus interest on term
debt plus lease rentals. Debt servicing requirement is sum of
repayment of term debt, interest on term debt plus lease rent payable.
2.2 Gross cash accrual may not be considered as a true representation of
available cash flow to service debt as gross cash accrual does not take
into account the actual cash available after netting out the variation in
stocks/inventory position. [It has to be acknowledged that ‘interest and
principal cannot be serviced out of earnings, which is an accounting
concept’.] Debt servicing has to be made in cash. Many transactions
and accounting entries can affect earnings, but not cash. Therefore, for
calculation of DSCR, actual cash available with the borrower should be
taken into consideration and accordingly the DSCR calculation for
restructured assets should be as under:
ACF + total interest excluding interest on WCL + lease rentals
2. The Borrower/promoters would arrange for induction of a strategic
investor/co-promoter, if required by the approval CDR EG.
3. CDR Lenders, with the approval of CDR EG, shall have a right to
appoint an independent Chairman/professional CEO.
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Annexure – V
Information to be furnished by the lead on implementation of
restructuring scheme as approved by the CDR Empowered Group
1. Name of the Company :
2. Date of sanction of scheme by CDR Empowered Group: -----------------
3. Details of the proposal (to be limited to the institution/bank furnishing
the information)
Name of the institution /bank which referred the case/ participating lenders etc.
Date of approval of the scheme by Empowered Group
Details of Package Approved
Comments
4. Progress in implementation:
Date of reference to the delegated authority seeking approval
Date of approval by the delegated authority
Date of effectiveness of the package in the books of institution /bank
Date of Communication to the Assisted Unit
Reasons for delay in effecting the package, if any.
5. Monitoring Committee
S.No Member FI/Bank Represented By1.2.3.4.
6. Payment Record of the Company
Bank Aggregate payments made by the Company as on date
Aggregate payments as envisaged in the restructuring package
O/s as on date
Observations/comments, if any, on payment record of the company
7. Status of approval/implementation of restructuring scheme by non-
member banks/institutions/unsecured lenders
8. Fulfillment of company’s/promoters’ obligations as envisaged in the
scheme. (i.e. Condition-wise Status of compliance of conditions of
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restructuring package)
9. Difficulties faced, in the opinion of the lead, in implementation of the
scheme Outstanding Issues and solution thereof.
10. Suggestions/Recommendations of Monitoring Committee for
relaxation/ modifications in terms/conditions of package to CDR EG.
11. Appointment of Concurrent Auditor and Concurrent Auditors’
observations.
12. Status on quality of asset
Name of the Bank
Classification of asset When in CDR
Present classification of account Remarks, if any
13. Summary of company’s operational and financial position (to be
forwarded on quarterly basis. However, any relevant qualitative or
quantitative information if available, to be reported on monthly basis.
ParticularsActuals For Qtr/Half 9 m/full year
Corresponding CDR Projection
s
Estimates for full
year
CDR Projection
for full year
Installed Capacity (unit-wise)Capacity Utilisation (unit-wise)Production (unit-wise)Gross Sales (Rs. in crore)Net Sales (Rs. in crore)PBIDT (Rs. in crore)Lease rentals (Rs. in crore)Interest (Rs. in crore)Depreciation (Rs. in crore)PBT (Rs. in crore)PAT (Rs. in crore)Net cash accruals (Rs. in crore)
Reasons for improvement/deterioration in performance vis-à-vis CDR
Projections. Corrective measures taken by the company to improve its
performance (in case of deterioration).
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The Company’ product positioning in the market at present, status of
change in management, if any etc.
11. Specific observations/comments, if any.
Annexure VI
List of circulars/clarifications issued/received post CDR Master
Circular dated June 3, 2009
Sr. No.
Circular/letter reference
Date of Circular Particulars
Added/replaced in Revised Master Circular at para no.
1 01/2009-1026-Mar-
2010 Recompense Replaced chapter 17
2 02/2010-11 23-Jun-2010 Holding on operations Added as chapter 3
3 03/2010-11 1-Jul-2010
Need Based Working Capital, its assessment, sanction and disbursement as per the approved CDR package Added to chapter 12
4 04/2010-1128-Aug-
2010
Promptness on the part of the lenders to sanction/disburse additional limits as per the approved CDR package Added to chapter 12
5
8518/Policy/
2010-11
24-Mar-2011
Recovery of Handling Charges for Restructuring Proposals Added to chapter 9