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Out-of-Court Debt and Equity Restructuring

Valuation, accounting and tax advice to assist companies navigate complex out-of-court debt and equity restructurings.

How We Help Clients Navigate Complex Debt and Equity Restructuring Scenarios

Debt and equity restructuring is a common strategy for companies facing financial distress or seeking to manage their capital structure. However, these restructurings can also trigger significant tax and accounting implications that require careful analysis. Kroll offers a comprehensive suite of services to help you evaluate, execute and report on debt and equity restructuring transactions such as debt modifications, settlement of debt in exchange of equity, or issuance of convertible debt/equity instruments.

Why Clients Choose Kroll

Challenge
Minimal Independence Challenges
Experts
Led by Experts
Integrated Expertise
Integrated Expertise
Seamless Engagement
Seamless Engagement
History
100-year History

Our Expertise

Post-Restructured Debt (and Equity) Valuation

We help assess the fair value of your debt and equity instruments before and after restructuring, when market pricing is unavailable, using yield benchmarking and option pricing techniques like Black-Scholes, Monte Carlo or lattice models.

Insolvency Exception

We perform a valuation of the business enterprise to help you determine the amount of any insolvency exception under IRC Section 108, which reduces the amount of cancelation of debt income (CODI) by the amount the entity is insolvent prior to restructuring.

Section 382 NOL Studies and Attribute Preservation and Reduction Analysis

We help determine if a debt modification triggers an ownership change under IRC Section 382, potentially limiting your use of net operating losses (NOLs) and tax attributes. Our 382 NOL study tracks ownership changes and calculates the Section 382 limitation.

Business Combination

If the restructuring triggers a change in control, the transaction may need to be accounted for as a business combination under ASC 805. We provide PPA valuation and purchase accounting support, including opening balance sheet preparation, technical memo drafting and financial disclosures.

Accounting for Debt Modification / Extinguishment

We assist with accounting assessments and documentation for debt restructuring, including journal entries, calculations and footnote disclosures per applicable standards. This includes troubled debt and debt modification assessments (10% Test) and calculating any gain or loss from debt extinguishment in exchange for equity or cash, if applicable.

Embedded Derivative Assessment

We assist with the timely identification of embedded derivatives in newly issued financial instruments such as convertible note, preferred stock, term loan and other equity-based contracts which may include embedded puts, calls, conversion options or other contractual features that meet the definition of a derivative and are required to be recorded at fair value.

Equity Instruments

We assist you in determining the accounting treatment of equity instruments that are issued as part of the debt/equity restructuring. Our services include assessing initial classification (equity or liability), analyzing equity issued in restructuring schemes, such as the exchange of existing equity or the conversion of convertible notes.

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