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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).
In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures, which eliminated the accounting guidance for troubled debt restructurings (TDRs) for creditors that have adopted ASU 2016-13. Guidance in this chapter assumes that ASU 2022-02 has been adopted.
This chapter discusses a lender’s accounting for a loan refinancing or restructuring. The debtor’s accounting for these transactions is addressed in ASC 470-60 and PwC’s Financing transactions guide (FG 3).
ASU 2022-02 introduced disclosure requirements relating to certain modifications of receivables from borrowers experiencing financial difficulty. The disclosures related to modifications with borrowers experiencing financial difficulty can be found in LI 12.
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