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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
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