Ask Colin

What does "bailout by the banks" mean?

It could mean many things, depending on the writer and the situation. Basically, I think it would mean that the banks have come to the rescue of a company rather than letting it go broke. By going broke, we mean that the company would go into a form of administration, where it might be able to trade out of its difficulties, or that receivers have been appointed to sell all the assets and distribute the proceeds to creditors.

Banks will normally only continue to support a company that is in difficulties if they think it can trade out of its problems or perhaps if the company can persuade the banks that they are better off to continue support than to let the company fail.

Support by the banks can take a number of forms. They may agree to lend more money. They may agree to suspend interest payments for a period. They may agree to exchange debt for equity. In extreme cases they may even write of some of the debt - this usually applies to countries rather than companies though.

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