Firms basically have two sources of external finance: bank loans ('debt') and funds from shareholders ('equity'). In a debt-for-equity swap, some of a firm's debt is cancelled and lenders are given shares.
This is often a sign that a firm is in trouble- perhaps unable to make the cash needed to meet interest payments, or in breach of the debt-to-equity ratio specified by lenders and unable to raise extra capital via new bank loans, or from shareholders via a rights issue.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
Family face £100k stamp duty bill after avoidance scheme crashes in court – the mistakes to avoidA couple faces a substantial stamp duty bill after trying to reduce the amount they owed
-
How to get a guaranteed income in retirementSavers want certainty in retirement, with almost two-fifths naming guaranteed income as their main priority. An annuity can achieve this – but what other income options are available to supplement it?
