Debt/Equity Swap

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Dictionary Says

Definition of 'Debt/Equity Swap'

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

Investopedia explains 'Debt/Equity Swap'

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.

Related Definitions

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    Covenant

    A promise in an indenture, or any other formal debt agreement, that certain activities will or will not be carried out.
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  • Swap

    Traditionally, the exchange of one security for another to change the maturity (bonds), quality of issues (stocks or bonds), or because investment objectives have changed. Recently, ...
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  • Debt

    An amount of money borrowed by one party from another. Many corporations/individuals use debt as a method for making large purchases that they could not afford under normal ...
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    • Equity

      1. A stock or any other security representing an ownership interest. 2. On a company's balance sheet, the amount of the funds contributed by the owners (the stockholders) plus the ...
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    • Bankruptcy

      A legal proceeding involving a person or business that is unable to repay outstanding debts. The bankruptcy process begins with a petition filed by the debtor (most common) or on behalf ...
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    • Capital Structure

      A mix of a company's long-term debt, specific short-term debt, common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using ...
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    • Indenture

      A contract between an issuer of bonds and the bondholder stating the time period before repayment, amount of interest paid, if the bond is convertible (and if so, at what price or what ...
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    • Equity Swap

      An exchange of cash flows between two parties that allows each party to diversify its income, while still holding its original assets. The two sets of nominally equal cash flows are ...
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