Debt for equity swaps
Debt for equity swaps

The following Restructuring & Insolvency practice note provides comprehensive and up to date legal information covering:

  • Debt for equity swaps
  • Key parties
  • Eligible companies
  • Mechanisms
  • Alternatives
  • Key issues
  • Fully consensual deal
  • Cram-down
  • Formal enforcement of share pledge
  • Common documents
  • More...

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marks the end of the Brexit transition/implementation period entered into following the UK’s withdrawal from the EU. At this point in time (referred to in UK law as ‘IP completion day’), key transitional arrangements come to an end and significant changes begin to take effect across the UK’s legal regime. This document contains guidance on subjects impacted by these changes. Before continuing your research, see Practice Note: What does IP completion day mean for R&I?

A popular restructuring method is a debt for equity swap; financial creditors receive equity in the restructured vehicle in return for reducing or cancelling their debt claims against the company (and the rest of the group).

Many highly levered deals have thin equity cushions and existing shareholders quickly find themselves 'out of the money'.

The debt for equity swap reduces balance sheet liabilities and allows lenders to take some of the upside following a restructuring once the company returns to profit (as equity holders, entitled to dividends once there are sufficient distributable reserves) or on any subsequent sale.

The valuation will show where value break; that tranche will expect to receive the most equity post-restructuring (see Practice Note: Where the value breaks and negotiating strength).

The introduction of the corporate rescue exemption found in section 322(5E) of the Corporation Tax Act 2009 (CTA 2009) may

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