Skip to content
GLOSSARYTERMS AS A CREDIT DESK USES THEM

Haircut (restructuring)

What is a haircut in a debt restructuring, and who takes it?

ONE OF 366 TERMS · FREE · NO SIGNUP

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

A haircut is the share of a debt a creditor agrees to give up in a restructuring, expressed as a percentage of what it was owed. A lender owed US$20m that accepts US$14m in full settlement has taken a 30% haircut. Lenders accept one when the recovery on offer beats what enforcement would realise after its costs and delay, and the negotiation turns on who bears it: senior and junior lenders, shareholders and sometimes guarantors, in the order their ranking and bargaining power allow.

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.

// WHAT IT IS NOT

In security valuation, a haircut is also the discount taken off an asset's value before lending against it, which gives its lending value; a restructuring haircut is a loss on the debt itself. Nor is it a write-off, which is the accounting entry that removes a loss from the bank's books.

// WORKED IN

// NEXT TO IT

CREDIT RISK AND PROBLEM LOANS

All 366 terms on one page