Search within this section
Select a section below and enter your search term, or to search all click Loans and investments
Favorited Content
10.3 Accounting for a refinancing or restructuring
Publication date: 31 May 2022
us Loans & investments guide
The accounting for any unamortized net fees or costs associated with a loan refinancing or restructuring depends on whether the refinancing or restructuring is a new loan or a modification.
Creditors should follow the guidance in ASC 310-20-35-9 and ASC 310-20-35-10 to determine the treatment of fees or costs associated with refinanced or restructured loans.
If the terms of the new loan resulting from a loan refinancing or restructuring are at least as favorable to the lender as the terms for comparable loans to other customers with similar collection risks who are not refinancing or restructuring a loan with the lender, the refinanced loan shall be accounted for as a new loan. This condition would be met if the new loan's effective yield is at least equal to the effective yield for such loans and modifications of the original debt instrument are more than minor. Any unamortized net fees or costs and any prepayment penalties from the original loan shall be recognized in interest income when the new loan is granted. The effective yield comparison considers the level of nominal interest rate, commitment and origination fees, and direct loan origination costs and would also consider comparison of other factors where appropriate, such as compensating balance arrangements.
If the refinancing or restructuring does not meet the condition set forth in paragraph 310-20-35-9 or if only minor modifications are made to the original loan contract, the unamortized net fees or costs from the original loan and any prepayment penalties shall be carried forward as a part of the net investment in the new loan. In this case, the investment in the new loan shall consist of the remaining net investment in the original loan, any additional funds advanced to the borrower, any fees received, and direct loan origination costs associated with the refinancing or restructuring.
The guidance in ASC 310-20-35-9 and ASC 310-20-35-10 is summarized in Figure LI 10-3.
Figure LI 10-3
Accounting for fees and costs associated with a refinancing or restructuring
Accounting for fees and costs associated with a refinancing or restructuring
New loan
| Unamortized net fees or costs from the original loan and any prepayment penalties are recognized in interest income when the new loan is granted.
A new effective interest rate will be determined
| |
Modification
| The investment in the new loan should comprise the remaining net investment in the original loan, any additional funds advanced to the borrower, any fees received, and direct loan origination costs associated with the refinancing or restructuring.
Unamortized net fees or costs from the original loan and any prepayment penalties are carried forward as part of the net investment basis of the new loan.
The effective interest rate of the loan should be recalculated based upon the amortized cost basis of the new loan and its revised contractual cash flows.
| |
Once the creditor has considered the guidance in ASC 310-20, the creditor should then apply the CECL impairment model to determine its expected credit losses and the allowance for credit losses in accordance with ASC 326. See LI 7 for further information.
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
Link copied
