Debt-for-equity Swap
In a debt-for-equity swap, a company's creditors generally agree to cancel some or all of the debt in exchange for equity in the company.
Debt for equity deals often occur when large companies run into serious financial trouble, and often result in these companies being taken over by their principal creditors. This is because both the debt and the remaining assets in these companies are so large that there is no advantage for the creditors to drive the company into bankruptcy. Instead the creditors prefer to take control of the business as a going concern. As a consequence, the original shareholders' stake in the company is generally significantly diluted in these deals and may be entirely eliminated, as is typical in a Chapter 11 bankruptcy.
Read more about this topic: Debt Restructuring
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