Government Finance Statistics Manual 2014

296 Government Finance Statistics Manual 2014

A3.12 With debt rescheduling, the applicable ex-

isting debt is recorded as being repaid and a new debt

instrument (or instruments) created with new terms

and conditions. Th is treatment does not apply, how-

ever, to interest arrears that are rescheduled when the

conditions in the existing debt contract remain un-

changed. In such a case, the existing debt contract is

not considered as rescheduled, only the interest ar-

rears. A new debt instrument is recorded for the re-

scheduled interest arrears.

A3.13 Th e debt rescheduling transaction is re-

corded at the time agreed to by both parties (the con-

tractually agreed time), and at the value of the new debt

(which, under a debt rescheduling, is the same value as

that of the old debt). If no date is set, the time at which

the creditor records the change of terms is decisive. If

the rescheduling of obligations due beyond the current

period is linked to the fulfi llment of certain conditions,

when the obligations fall due (such as multiyear Paris

Club rescheduling), entries are recorded only in the

period when the specifi ed conditions are met.

Debt refi nancing

A3.14 Debt refi nancing involves the replacement of

an existing debt instrument or instruments, including

any arrears, with a new debt instrument or instruments.

It can involve the exchange of the same type of debt in-

strument (such as a loan for a loan) or diff erent types of

debt instruments (such as a loan for a bond). For exam-

ple, a public sector unit may convert various export credit

debts into a single loan, or exchange existing bonds for

new bonds through exchange off ers given by its creditor

(rather than a change in terms and conditions).

A3.15 Th e treatment of debt refi nancing transac-

tions is similar to debt rescheduling. Th e debt being

refi nanced is extinguished and replaced with a new

fi nancial instrument, or instruments. Th e old debt is

extinguished at the value of the new debt instrument,

except for nonmarketable debt (e.g., a loan) owed to

offi cial creditors.

A3.16 If the refi nancing involves a direct debt ex-

change, such as a loan-for-bond swap, the debtor re-

cords a reduction in liabilities under the appropriate

debt instrument and an increase in liabilities to show

the creation of the new obligation. Th e transaction is

recorded at the value of the new debt (refl ecting the

current market value of the debt), and the diff erence

between the value of the old and new debt instruments

is recorded as a holding gain or loss. However, if the

debt is owed to offi cial creditors and is nonmarket-

able, the old debt is extinguished at its original value

with the diff erence in value with the new instrument

recorded as debt forgiveness (see paragraphs A3.7–

A3.9). Where there is no established market price

for the new bond, an appropriate proxy is used. For

example, if the bond is similar to other bonds being

traded, the market price of a traded bond would be

an appropriate proxy for the value of the new bond.

If the debt being swapped was recently acquired by

the creditor, the acquisition price would be an appro-

priate proxy. Alternatively, if the interest rate on the

new bond is below the prevailing interest rate, the dis-

counted value of the bond, using the prevailing inter-

est rate, could serve as a proxy. If such information is

not available, the face value of the bond being issued

may be used as a proxy. See also debt-for-equity con-

version in paragraph A3.21).

A3.17 Th e balance sheet refl ects the changes in the

stock positions as a result of the transactions extin-

guishing the old debt instrument and creating the new

debt instrument along with any valuation changes.

For example, a loan-for-bond exchange will generally

result in a reduction in the liabilities of the debtor (re-

duction in the claim of the creditor on the debtor) be-

cause the loan is recorded at nominal value, while the

bond is recorded at market value, which may be lower.

A3.18 If the proceeds from the new debt are used

to partially pay off the old (existing) debt, the remain-

ing old debt is recorded being extinguished and a new

debt instrument is created (equal to the value of the

remaining old debt extinguished), unless the old debt

is paid off through a separate transaction.

A3.19 If the terms of any new borrowings are

concessional, the creditor could be seen as providing

a transfer to the debtor. Debt concessionality is dis-

cussed in paragraphs A3.39–A3.41.

Debt Conversion and Debt Prepayment

Debt conversion

A3.20 Debt conversion (swap) is an exchange of

debt—typically at a discount—for a nondebt claim

(such as equity), or for counterpart funds that can be

used to fi nance a particular project or policy. In es-

sence, public sector debt is extinguished and a non-

debt liability created in a debt conversion.