Lenders may refinance or restructure receivables, loans, and debt agreements for a number of reasons. In some cases, loans will be refinanced or restructured as part of continuing a relationship with a borrower. For example, loans may be refinanced or restructured to have lower interest payments in a declining interest rate environment. In other instances, loans and debt instruments may be restructured as part of a credit management strategy (i.e., to improve the likelihood of payment or amount of repayment). These strategies may be negotiated between a lender and a borrower, as a result of participating in certain government programs, or as the result of restructurings imposed by governing bodies, such as a court in a bankruptcy proceeding. Modifications can include changing the interest rate, guarantee, or collateral provisions; deferring or forgiving payments; and/or extending the maturity of the receivable, loan, or security (or a combination of these).
This chapter discusses a lender’s accounting for a loan refinancing or restructuring, including a troubled debt restructuring (TDR). The debtor’s accounting for these transactions is addressed in ASC 470-60 and PwC’s Financing transactions guide (FG 3).
The guidance on TDRs is designed to interact with the current expected credit losses (CECL) model. The disclosure requirements related to TDRs can be found in LI 12.
New guidance
In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures. ASU 2022-02 eliminates the accounting guidance for TDRs in ASC 310-40, Receivables - Troubled Debt Restructurings by Creditors. The elimination of TDRs can only be applied by entities that have adopted the CECL model introduced by ASU 2016-13. For entities that have not adopted ASU 2016-13, the TDR guidance remains applicable until they adopt ASU 2016-13 and the effective dates for the amendments in ASU 2022-02 are the same as the effective dates in ASU 2016-13.
For entities that have adopted ASU 2016-13, the amendments in ASU 2022-02 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption of ASU 2022-02 is permitted, including adoption in an interim period. If an entity elects to early adopt ASU 2022-02 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes the interim period.
The guidance in this chapter reflects the guidance before a reporting entity has adopted ASU 2022-02. See LI 10 for loan refinancing and restructuring guidance after the adoption of ASU 2022-02.
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