troubled debt restructuring

Process by which an institutional lender (such as a bank) modifies or relaxes the terms of a loan agreement to minimize the eventual loss by accommodating a borrower who is financially incapable of meeting them. According to the US Financial Accounting Standards Board standard 15 (FASB 15) restructuring of troubled loans (where no payment has been made for 90 days or more) is classified as either a loan where (1) the borrower is required to pledge additional assets as collateral, or (2) the terms of the loan agreement are modified to include, among other changes, (a) provision for outright foreclosure on the loan without applying to the courts, (b) reduction in the applicable interest-rate, (c) extension of the loan period, (d) acceptance of interest-only payments for a specified period, and/or (e) forgiveness of a part of the principal and/or accrued interest amount. See also workout arrangement.