DebtEquitySwaps
Debt-equity swaps are financial arrangements in which creditors agree to exchange a portion of outstanding debt for an equity stake in the debtor, or in a related entity. The swap converts claimed liabilities into ownership, reducing leverage on the balance sheet and potentially aligning creditor incentives with the debtor’s recovery prospects. They are commonly used in corporate restructurings, insolvency proceedings, and, less frequently, in sovereign or public sector restructurings, where creditors may receive equity in privatized assets or in state-owned enterprises.
Typically, negotiations set a conversion ratio or price, possibly at a discount to market value. The debtor
Benefits include reducing debt burden, lowering interest costs, improving solvency, potentially avoiding liquidation, and giving creditors
Risks include dilution of existing shareholders, loss of control, valuation disputes, and governance complexity, as well
Implementation and regulation: the process typically requires negotiations among debtor and creditors, possible court approval, securities
Overall, debt-equity swaps are a specialized tool for balance-sheet repair and creditor cooperation, with suitability depending