Debt participation swap

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A debt to swap , English debt-equity swap is a transaction in which a claim of a creditor against a debtor company in favor of a corresponding involvement in this turns off. The debtor often only has a low credit rating .

procedure

In practice, a debt participation swap usually takes place in such a way that the creditor's claim is sold to a third party, for example a hedge fund or an investment bank , at a discount . The shares in the company are therefore not transferred to the creditor, but to the purchaser of the claim.

In Germany, a market has now developed for these dubious or non-performing receivables , where hedge funds or investment banks buy such receivables at sometimes very high discounts on the face value, convert them into equity and thus participate in a troubled company.

Consideration from the debtor's point of view

From the company's point of view, the main advantage of a debt swap is the restriction or complete prevention of over-indebtedness . In the course of the restructuring, the equity ratio will be improved and additional liquidity will be created, as the burden of interest and repayments will no longer apply. As a result, the improved creditworthiness and the resulting better rating will create new opportunities for debt financing. This is particularly important in the reorganization, as banks that already have claims against the company are more willing to grant further loans.

There are still opportunities for the troubled company as a result of the change from a creditor to a partner. In this way, entrepreneurial responsibility can be taken on by the new shareholder as well as reorganization and restructuring work. A separate restructuring consultant can be appointed as managing director or control can be carried out via the supervisory board mandates. Ideally, this can be the first step towards a successful turnaround for the company.

Consideration from the creditor's point of view

From the creditors' point of view - often banks - a debt participation swap makes more sense, the less valuable the claim is. If the claim has become practically worthless due to the impending insolvency, a debt participation swap can limit the damage to the creditor.

Consideration from the investor's perspective

From an investor's point of view, the debt participation swap is a risky form of corporate participation. If the investor is wrong in assessing the turnaround possibility and the restructuring does not go according to plan, the investment is lost - apart from a possible return flow from the bankruptcy estate according to the insolvency rate . If the restructuring succeeds, the acquired company share will increase in value and enormous economic potential can be released. In particular in the case of freely tradable shares in stock corporations (so-called “free floats”), price gains are possible that far exceed the amount of the previous claim. If the investor keeps his shares after the restructuring has taken place, he has an influence on the management of the company, since the share of the old shareholders decreased due to the capital increase .

Special features in bankruptcy

The law to further facilitate the restructuring of companies (ESUG) of December 7, 2011 in § 225a InsO created the possibility for creditors to convert claims into shares in the company even against the will of the persons involved in a debtor company. This far-reaching encroachment on the position of the previous shareholders can be justified with the insolvency goal of the best possible satisfaction of creditors (§ 1 sentence 1 InsO), since the shareholders are subordinate to a company insolvency, i.e. only satisfied after all other creditors. The previous shareholders must therefore accept that the creditors can make use of the company value in order to have their demands met within the framework of a reorganization of the company. Ultimately, this can also lead to the old shareholders leaving the company entirely as a result of a capital cut to zero.

Individual evidence

  1. ↑ Marcel Streeck: The situation of the debtor in English and German insolvency law . In: Ulrich Magnus, Peter Mankowski (Ed.): International Legal Studies . tape 72 ( Introduction [PDF; 220 kB ]).
  2. ^ A b c Ann-Kathrin Schleusener: The Debt-Equity-Swap. Lang, Frankfurt am Main 2012, ISBN 978-3-631-62289-6 .
  3. ↑ Christoph Schalast, Christian Daynes: Distressed Debt - Investing in Germany - Business Models and Perspectives. HfB - Business School of Finance and Management, Frankfurt 2005.
  4. ^ Norbert Mückl: The Debt-Equity-Swap as a restructuring instrument in tax law. In: Finanz-Rundschau Income Tax Law. 91, 2009, Volume 11
  5. ^ School of Finance and Management. 2005.
  6. ↑ Bernhard Schellenberg: Reorganization Management: Immediate Measures in the Corporate Crisis. Berlin 2008, ISBN 978-3-503-10645-5 .
  7. ↑ Tobias Gutowski: The Debt-Equity-Swap as a restructuring instrument in the insolvency code according to the ESUG. (= Insolvency law in research and practice. Volume 87). Hamburg 2014, ISBN 978-3-8300-7996-5 .