What is Debt-Equity Swap?
A debt-equity swap is a way to restructure some of the finances of a corporation so that it can better position itself in terms of its financial standing. In the case of a debt-equity swap, the lender is offered shares of common stock in exchange for existing bonds. The number of shares of stock awarded is determined by the amount of outstanding debt and the stock’s value. A debt-equity swap is attractive to companies for a number of reasons. Most importantly, some companies may need to boost their bond ratings. Changing the debt-equity ratio in favor of equity may be the easiest way to do this. Improving a debt-equity ratio is important for some companies, especially if it is perceived that their debt amounts are getting too high. In such cases, whether it is a bond or bank loan, companies have an incentive to improve this number. While a debt-equity swap is an attractive option for the companies offering the trade, investors may or may not wish to engage in a debt-equity swap. Invest
