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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Debt-for-equity swap

What is a debt-for-equity swap, and why would a lender take shares for its loan?

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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

A debt-for-equity swap is a restructuring in which lenders cancel part of what they are owed in exchange for shares in the borrower, cutting the debt to what the business can carry and giving lenders the upside of a recovery. In a composite case, a company owing US$100m that can support only US$60m keeps that as debt and converts US$40m into most of its equity, heavily diluting the old shareholders. Lenders weigh it against selling or enforcing: they become owners of a business they did not choose, often hold shares that are hard to sell and, if they are banks, carry a heavier capital charge on equity than on loans.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

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