What is Debt-for-Equity Swaps?

Question

What is Debt-for-Equity Swaps?

Answer 1

In a debt-for-equity swap, a company's creditors generally agree to cancel some or all of the debt in exchange for equity in the company.

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Answer 2

Debt restructuring is a process that allows a private or public company - or a sovereign entity - facing cash flow problems and financial distress, to reduce and renegotiate its deliquent debts in order to improve or restore liquidity and rehabilitate so that it can continue its operations.

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In a debt-for-equity swap, a company's creditors generally agree to cancel some or all of the debt in exchange for equity in the company.

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A refinancing deal in which a debt holder gets an equity position in exchange for cancellation of the debt.

There are several reasons why a company may want to swap debt for equity. For example, a firm may be in financial trouble and a debt/equity swap could help avoid bankruptcy, or the company may want to change capital structure to take advantage of current stock valuation.

Covenants in the bond indenture may prevent a swap from happening without consent.