Debt/Equity Swap

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Debt/Equity Swap

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.
References in periodicals archive ?
ii) Business International, The Debt Equity Swap Handbook (New York, 1989)
(5.) Government of Mexico, Ministry of Finance, Debt Equity Swap Programmes: The Mexican Experience (UNCTC: New York, 1990)
The central bank has proposed to improve the capital structure of the textile companies, the government should encourage debt equity swap by the banks at prices higher than book value or the market value.
On March 30, the company completed the acquisition of Terra Factor Indonesia and Columbia Chrome Indonesia at a price of Rp 170 billion through debt equity swap.
There is no set structure for a debt equity swap. On a simple debt equity substitution, a bank may simply swap some of its loan for an existing class of shares of the company.
Of the total, 150 billion yen will come from the flotation of preferred shares and the remaining 140 billion yen will be procured via a debt equity swap. Both deals will be completed May 2.
Consider the case of a debt equity swap in which external government debt is exchanged by a claim on the capital stock owned by the domestic private sector.
Pradhan, 1991, "Debt Equity Swaps as Bond Conversions--Implications for Pricing", Journal of Banking and Finance, 15:29-41
Finally, we examine the issue of debt equity swaps as one of the best alternatives for surplus funds from Islamic banks.
The provision of debt equity swaps by the banks was appreciated by the board except that proper check and balance be in place to avoid abuse of this facility.
Compound these high interest rates over time, factor in the global recession, and the rest is history: Mexico's foreign debt today is over $100 billion despite the Brady Plan, "debt equity swaps," rescheduling, and other measures designed to reduce it.
Debt equity swaps involving conversion into equity and debt currency swaps that convert debt into local currency liabilities contribute if they attract additional foreign equity investment or bring about a return of flight capital.