Debt-equity swap (also referred to in German as Schuldenswap)

In general, the conversion of loans granted to companies of doubtful creditworthiness into equity capital. – In particular, the purchase by a company of receivables denominated in convertible currencies such as USD or EUR from banks to over-indebted countries. The bank sells – the bad debt – usually non-performing bonds – at a hefty discount. – The acquiring company exchanges the securities thus acquired with the government of the indebted country for its domestic currency. – The money raised is used to make an investment in the debtor country. – The company thus has the advantage of obtaining the desired domestic currency at a low price, and the debtor country thus pays off part of its foreign liabilities denominated in convertible currency. – Of course, it should not be overlooked that a bank that sells bad debts at a discount suffers a loss as a result; the profit of the company investing in the debtor country is thus roughly equivalent to the bank’s loss. – See bond, bad, deal, liquidity swap, snow money, sovereign debt, denied.

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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