Troubled Debt Restructuring

Condition where a lender grants a concession to a borrower in financial difficulty. The Statement of Financial Accounting Standards No. 15 (FASB 15) divides debt restructuring of nonperforming loans, where the loan payments are past due 90 days or more, into two categories: (1) loans where the borrower transfers assets to the lender; and (2) those where credit terms are modified. The latter includes foreclosures, reductions in the interest rate, extension of the maturity date, and forgiveness of principal and/or interest payments. Typically, the lender negotiates a Workout Agreement with the borrower to modify the original credit terms rather than initiate foreclosure proceedings against the delinquent borrower. See also Adversely Classified Assets; Cash Basis Loan; Loss; Nonaccrual Asset; Special Mention; Stand-Still Agreement; Write Off.