11.1 Background

If a creditor anticipates that a debtor might be unable to pay its outstanding debt obligations as they become due, the creditor may be willing to grant the debtor a concession. For example, the creditor might agree to reduced or extended payment terms or a settlement of some or all of the obligation through the transfer of assets or equity shares (see Section 11.2). By granting a concession, the creditor hopes to improve its prospects of recovering as much as possible of its investment and avoiding a costly legal process (e.g., foreclosure, bankruptcy proceedings, or other adverse consequences of an event of default).

Under ASC 470-60, a debt restructuring qualifies as a TDR if both of the following two criteria are met: (1) the debtor is experiencing financial difficulties and (2) the creditor for economic or legal reasons related to such difficulties has granted the debtor a concession that it would not otherwise consider (see Section 11.3). ASC 470-60 discusses special accounting, presentation, and disclosure requirements related to TDRs (see Sections 11.4 and 11.5).