Debt/Equity Swap

What is a 'Debt/Equity Swap'

A debt/equity swap is 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.

BREAKING DOWN '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.

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RELATED FAQS
  1. What is a debt/equity swap?

    Occasionally, a company will need to undergo some financial restructuring to better position itself for long term success. ... Read Answer >>
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  3. How can a company hedge with currency swaps?

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  4. What would motivate an entity to enter into a swap agreement?

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  5. When was the first swap agreement and why were swaps created?

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