Troubled Debt Restructuring
Definition
Troubled Debt Restructuring (TDR) is a formal identification for accounting purposes under US FASB rules of certain types of debt Forbearance. Specifically, a restructuring of a debt constitutes a troubled debt restructuring if the creditor for economic or legal reasons related to the debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider. That concession either stems from an agreement between the creditor and the debtor or is imposed by law or a court[1].
As per the 2011 update[2], in evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude that both of the following exist:
- The restructuring constitutes a concession
- The debtor is experiencing financial difficulties.
Under US GAAP, forborne exposures as defined by[3] may or may not overlap with the category of Troubled Debt Restructuring and the identification as forborne should have no incidence on the provisioning analysis under the Current Expected Credit Loss model.
