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Related to Debt/Equity Swap: Debt equity ratio
A situation in which a debtor (which is a company) replaces the debt held by one or more creditors with a percentage of ownership in the company. A debt-equity swap often occurs if the company would otherwise be unable to repay the creditor(s) anything without going bankrupt. However, the swap may be a result of change from a debt-based to an equity-based capital structure. In either case, these swaps are often considered part of a company's attempt to restructure itself. Some debt agreements restrict the debtor's ability to force a debt-for-equity swap.