debt-equity swap

Definition

A transaction in which a corporation exchanges existing bonds (debt) for newly issued stock (equity). For example, XYZ company can in essence cancel a portion of their debt and transfer the equivalent balance to equity. A debt-equity swap can help a company that is in financial trouble by canceling some of its outstanding debt. Other companies may take advantage of this process if the current value of their stock is high, allowing them to trade more debt for less stock.
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debt/equity ratio debtholder