Define the following terms: (3) composition

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Define the following terms: (3) composition

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Define the following terms:
(3) composition

Explanation & AnswerSolution by a verified expert

Explanation

In composition of debt as a part of informal restructuring, the creditors voluntarily reduce their claims on the financially distressed company. The claims reduced by the creditors may include the reduced principal payments, lower interest rates on debt, accepting equity in exchange for debt, or a combination of all.

Verified Answer

The composition is a type of informal restructuring where the creditors voluntarily reduce some of their claims on the financially distressed company either by accepting lower coupon payment or by reducing the claim on the principal amount.

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