DEBT RESTRUCTURING Flashcards
In debt restructuring, how to find the gain or loss in restructuring when it comes to asset swap?
CV of the liability
Less: CV of the Asset
How do you find the CV of the liability?
Face Amount
Add: Accrued Interest (if any)
How do you find the gain or loss in equity swap?
CV of the liability
Less: Valuation of the shares issued
In debt restructuring, what is the order of priority in the valuation of shares issued?
- FV of the shares issued
- FV of the liability
- CV of the liability
In the modification of the terms of a liability, what is considered substantial and non substantial?
If it’s substantial, the gain or loss is >= 10 of the CV of the liability
If non-substantial, the gain or loss is < 10 of the CV of the liability
How do you find the gain or loss on modification?
CV of the liability
Less: PV of the modified liability (with original EI)
If the gain on modification is substantial, what do you do?
CV of the liability
Less: PV of the modified liability (with new EI)
If the gain on modification is non-substantial, what do you do?
The original gain or loss on modification is used, as well as the PV of the modified liability (with old EI)
If substantial, do you include the arrangement fees in the consideration??
Yes
If non-substantial, do you include the arrangement fees in the consideration?
No
If the accrued interest is not forgiven, what do you do?
Add this to the PV of the modified liability to find gain or loss on modification.
If non-substantial, but with arrangement fees, how do you find interest expense?
Deduct the arrangement fee from the PV of the liability, then multiply to the new effective rate.
(This is because when it comes to non-substantial the carrying value is PV less the arrangement fees.)
If substantial, but with arrangement fees, how do you find interest expense?
New EI x PV of the liability
