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Debt Restructuring Strategies Explained

This document discusses three methods for restructuring debt: 1) an asset swap, 2) an equity swap involving valuing shares, and 3) modifying the terms of the liability. Modifying terms involves determining if there are substantial changes, and if so, treating it as an extinguishment by calculating the gain or loss, or if not, deducting arrangement fees from discounts or premiums. It provides the calculations and notes that a gain/loss on extinguishment indicates substantial modification while a gain/loss on modification indicates non-substantial changes.

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Kent Raysil Pamaong
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81 views1 page

Debt Restructuring Strategies Explained

This document discusses three methods for restructuring debt: 1) an asset swap, 2) an equity swap involving valuing shares, and 3) modifying the terms of the liability. Modifying terms involves determining if there are substantial changes, and if so, treating it as an extinguishment by calculating the gain or loss, or if not, deducting arrangement fees from discounts or premiums. It provides the calculations and notes that a gain/loss on extinguishment indicates substantial modification while a gain/loss on modification indicates non-substantial changes.

Uploaded by

Kent Raysil Pamaong
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

DEBT RESTRUCTURING

1. Asset Swap
2. Equity Swap
Valuation of shares
a. FV of shares
b. FV of liability
c. CA of liability

3. Modification of terms
a. Modification of the liability
b. Extinguishment of the liability

Modification of terms involves two-steps


1. Determine if with or without substantial
modification
CA of liability xx
PV of liability under new terms* (xx)
Gain or loss xx
Less: arrangement fee (xx)
Net gain or loss** xx

*Use original effective rate


**if greater than or equal to 10% of CA old
liability = with substantial modification
***if less than 10% = without substantial
modification, deduct arrangement fee from
discount/premium on NP

2. If with substantial modification, there is as if an


extinguishment thus compute gain or loss on
extinguishment

CA of old liability xx
PV of new liability @ new rate (xx)
Gain or loss xx
Arrangement fee (xx)
Net gain or loss xx

Note:
1. Gain or loss on extinguishment = indicates
problem is with substantial modification
2. Gain or loss on modification = indicates
problem is without substantial modification

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