Is the contemporaneous exchange of new debt for old debt considered an extinguishment or modification of the old debt? We have a debt refinancing that involves the issuance of a new term loan and the concurrent satisfaction of existing debt. The proceeds will be used to settle the existing notes.
Contemporaneous exchange of new debt for old debt
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A contemporaneous exchange of cash between the same debtor and creditor in connection with the issuance of a new debt instrument and satisfaction of an existing debt instrument by the debtor is accounted for under the debt modification guidance (ASC 470-50). You would need to apply the 10% cash flow test to determine if the transaction should be accounted for as a debt extinguishment or a modification. If the difference is at least 10%, the instruments are considered “substantially different” and you would account for it as an extinguishment and issuance of new debt.