# MacroVision v100: noncash corporate debt-to-equity workout
29 October 2026. Illustrative contractual rule, not a legal insolvency procedure, estimated recovery model or welfare assessment.

## Finding
A debt-to-equity exchange removes debt-service claims but does not create the cash needed to finance production/investment. In the tested grid it does not increase completed paths.

| Consecutive missed-service years before exchange | Actual complete / 576 | Actual paths with an observed exchange | Completed actual paths with exchange | Baseline fail now complete | Baseline complete now fail |
|---|---:|---:|---:|---:|---:|
| Disabled | 220 | 0 | 0 | 0 | 0 |
| 1 | 215 | 127 | 11 | 0 | 5 |
| 2 (primary diagnostic rule) | 220 | 37 | 5 | 0 | 0 |
| 3 | 220 | 1 | 0 | 0 | 0 |

The baseline here is v98's limit-60, 4%-interest corporate credit variant, not v96's no-credit case. All scenarios retain 10% opening-principal annual amortization. The grid contains 576 actual and 576 matched-policy controls per trigger, 4,608 paths in total.

The two-year rule is a declared model experiment, not an estimated legal/default threshold. One- and three-year rules are fixed sensitivity alternatives. Each rule bundles conversion with a permanent post-exchange new-credit stop; the comparison does not isolate conversion timing from credit access. No regime rescues a baseline failed path in this grid.

## Trigger and sequence
A service miss means positive capitalized interest OR cash principal repayment below 10% of opening principal, at tolerance 1e-8. Track consecutive annual misses; reset the streak after a fully serviced year. Zero opening debt does not itself trigger a miss.

The trigger is checked only after the existing annual cash/real-capital/equity feasibility checks pass. An already unfinanceable attempted year still stops; conversion cannot retroactively fund it. New borrowing made earlier in that accepted annual step is included in debt converted. No fresh corporate advances are permitted after the first exchange, permanently. There is at most one exchange per path.

The existing government feasibility gate remains. Operating capital and this year's consumption/output are unchanged at the exchange. Future dividend ownership changes, which can affect household saving, taxes/transfers indirectly through inherited dynamics and future capital/output. No new direct employment shock, fire sale, operating shutdown or resolution service cost is added.

## Explicit recovery and ownership allocation
Let U be total existing equity units, q the inherited positive exogenous quote and V=qU the enterprise quote value; D=sum of lender claims. Lenders receive equity valued at R=min(D,V), allocated pro-rata to their loan claims. Old shareholders retain fraction max(0,1-D/V) of their former equity units. Total equity units stay U.

For cohort k:
```
new units[k] =
    old units[k] * max(0,1-D/V)
  + U * (min(D,V)/V) * claims[k]/D

loan claims after exchange = 0
corporate debt reduction = D
lender equity recovery value[k] = min(D,V) * claims[k]/D
lender mark loss[k] = claims[k] - lender equity recovery value[k]
cash recovery = 0
```
Thus no money or capital is created. Loan asset extinguishment has a matching corporate liability extinguishment, and received equity is explicitly allocated. Original shareholders can be diluted or wiped out. Inherited exogenous quotes are a valuation assumption, not sale proceeds or a buyer willing to pay cash.

Where V>=D, old equity holders are diluted and lenders receive par-valued equity; that is not a demonstrated cash recovery. If V<D, old equity is wiped out and lenders bear the difference D-V in quoted claim value. The inherited consolidated valuation allowed negative residual equity before resolution; removing that negative position offsets lender marks in the aggregate valuation identity. This is an explicit modeling convention, not a claim about legal shareholder liability.

## Observed losses and interpretation limits
No exchange in this particular tested grid has V<D, so **observed lender quote-based mark losses are zero**. This follows from inherited high exogenous valuations and the selected scenarios. It must not be interpreted as riskless lending, full cash recovery, an estimated recovery rate of 100% or absence of economic loss. Lenders now hold illiquid risky equity instead of loan claims.

In the primary two-year rule, only 5 of 37 actual paths experiencing exchange reach year 20; the other 32 stop later. Completion outcomes do not certify viability after workout. All control rules have 144 completed controls; none of the completed controls undergoes an exchange. The one-year control rule has 144 observed exchanges in paths that later fail.

For displaced cohorts, the count preserving >=90% own initial nonhousing consumption is 98 consumer-debt-free and 90 consumer-debt for disabled/two-/three-year rules; it is 93 and 85 under the one-year rule. These are grid counts conditional on completion, not comparable absolute living standards or causal policy effects.

## Accounting and baseline checks
Original v98/v99 files are unchanged. A separate v100 fork adds only the stated trigger, exchange and new-credit closure.

- Four new tests verify a solvent exchange, an underwater exchange with lender mark loss, unchanged disabled-workout results, money/loan conservation and no new lending after conversion.
- Together with v96–99 tests, 15 tests pass.
- All 1,152 disabled-workout compact actual/control paths reproduce v98's limit-60/rate-4% results exactly.
- Every accepted observation across the 4,608 paths checks unchanged aggregate money and corporate loan balances including converted debt.
- Every exchange checks unchanged aggregate quoted consolidated value and unchanged total equity units. Redistribution by cohort is recorded; equal aggregate value does not imply equal household welfare.

The underwater case is tested synthetically; it is not claimed as an observed case in the grid. No PD/LGD, empirical recovery, legal priority or implicit lender guarantee is added.

## Reproduction
```bash
python scripts/corporate_workout_v100.py
python -m unittest discover -s scripts -p 'test_*v9[6789].py' -v
python -m unittest discover -s scripts -p test_corporate_workout_v100.py -v
```
Full local output: data/processed/corporate_workout_v100.json.
Checked-in summary: data/processed/corporate_workout_summary_v100.json.
Hashes pin the model, ledger, generator and inherited dependencies.

## Next priority and thesis implication
The experiment separates a balance-sheet restructuring from liquidity provision: removing debt service without a cash source cannot resolve an immediate investment-financing shortfall. It does not establish that one-year restructuring is generally harmful or that two years is optimal.

Next priority is to audit post-exchange paths and the valuation assumption: identify when they fail, who receives future dividends, and whether the quoted equity recovery remains defensible under lower enterprise values. Specify valuation stress and any liquidity provision separately before comparisons. Keep the exogenous-price/credit-access assumptions visible rather than maximizing the number of completed paths.

References: [v98 corporate credit](CORPORATE_CREDIT_V98.md), [v99 cash-service audit](DEBT_SERVICE_AUDIT_V99.md), [v97 initial financing boundary](FINANCING_DIAGNOSTIC_V97.md). All results remain conditional hypothetical simulations.