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A popular restructuring method is a Debt for equity swap; financial creditors receive Equity in the restructured vehicle in return for reducing or cancelling their debt claims against the company (and the rest of the group).

Many highly leveraged deals have thin equity cushions and existing shareholders often may find themselves 'Out of the money'.

The debt for equity swap reduces balance sheet Liabilities and allows lenders to take some of the upside following a restructuring once the company returns to profit (as equity holders, entitled to dividends once there are sufficient distributable reserves) or on any subsequent sale.

The valuation will show where value breaks; that tranche will expect to receive the most equity post-restructuring (see Practice Note: Where the value breaks and negotiating strength).

The corporate rescue exemption found in section 322(5E) of the Corporation Tax Act 2009 (CTA 2009) may reduce the popularity of the debt to equity swap as a restructuring tool. The debt to equity swap was often used to take advantage of an exemption in CTA 2009, which allowed for