Debt/Equity Swap

AAA

DEFINITION of 'Debt/Equity Swap'

A transaction in which the obligations (debts) of a company or individual are exchanged for something of value (equity). In the case of a publicly-traded company, this would generally entail an exchange of bonds for stock. The value of the stocks and bonds being exchanged are typically determined by the market at the time of the swap.

INVESTOPEDIA EXPLAINS 'Debt/Equity Swap'

A debt/equity swap is a refinancing deal in which a debtholder gets an equity position in exchange for cancellation of the debt. The swap is generally done to help a struggling company continue to operate (after all, an insolvent company can't pay its debts or improve its equity standing). However, sometimes a company may simply wish to take advantage of favorable market conditions.


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

RELATED TERMS
  1. Indenture

    A legal and binding contract between a bond issuer and the bondholders. ...
  2. Swap

    Traditionally, the exchange of one security for another to change ...
  3. Bullet Bond

    A debt instrument whose entire face value is paid at once on ...
  4. Capital Structure

    A mix of a company's long-term debt, specific short-term debt, ...
  5. Equity Swap

    An exchange of cash flows between two parties that allows each ...
  6. Bankruptcy

    A legal proceeding involving a person or business that is unable ...
Related Articles
  1. Will Corporate Debt Drag Your Stock ...
    Investing Basics

    Will Corporate Debt Drag Your Stock ...

  2. An Introduction To Swaps
    Options & Futures

    An Introduction To Swaps

  3. Debt Reckoning
    Investing

    Debt Reckoning

  4. What is a debt/equity swap?
    Investing

    What is a debt/equity swap?

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center