There are several possible ways in which a debt swap can be done. However, the aim is usually the same to refinance a borrower and strengthen its balance sheet.
So, for example, if a large bank such as Anglo Irish gets into financial difficulty, a deal can be done in such a way that holders of high-risk 'subordinated' bonds are offered the chance to swap them for much lower-risk, government-backed securities. For the investor, the scheme offers the chance to get out of an investment that may never pay back future coupons and/or capital.
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