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DEBT ASSUMPTION

Statistics Directorate    
Definition:
Debt assumption is a special form of debt refinancing, involving three parties—the creditor, the original debtor, and a new debtor who assumes the debt obligation.

A debt assumption involves two simultaneous transactions; the first transaction cancels the original debtor’s obligation, and the second transaction creates a new debt contract between the creditor and the new debtor, or assumer.

The first transaction is classified as a capital transfer (as in the case of debt forgiveness), and the second transaction involves the creditor’s acquisition of the new debt instrument issued by the assumer. Any write-down of asset value by the creditor is recorded in the revaluation account.

Context:
The assumption of a debt liability of one entity by another entity, usually by mutual agreement. (IMF, 2003, External Debt Statistics: Guide for Compilers and Users – Appendix III, Glossary, IMF, Washington DC. Available at
http://www.imf.org/external/pubs/ft/eds/Eng/Guide/index.htm.

Source Publication:
Monetary and Financial Statistics Manual, IMF, Washington, 2000, para. 211.

Hyperlink:
http://www.imf.org/external/pubs/ft/mfs/manual/index.htm

Statistical Theme: Financial statistics

Created on Tuesday, September 25, 2001

Last updated on Friday, December 02, 2005