distress-for-equity swaps

Distress-for-equity swaps are financial arrangements where a lender or creditor agrees to forgive some or all of a borrower’s debt in exchange for equity—ownership shares—in the borrower’s company. This typically occurs when the borrower is struggling financially and cannot repay their debt. Instead of demanding full repayment, the creditor converts the debt into an ownership stake, giving them an interest in the company’s future profits. This process helps the borrower reduce their debt burden while providing the creditor with potential upside if the company recovers and grows.