How risky is the debt in highly leveraged transactions?*
نویسندگان
چکیده
This paper estimates the systematic risk of the debt in public leveraged recapitalizations. We calculate this risk as a function of the difference in systematic equity risk before and after the recapitalization. The increase in equity risk is surprisingly small after a recapitalization, ranging from 37% to 57%, depending on the estimation method. If total company risk is unchanged, the implied systematic risk of the post-recapitalization debt in twelve transactions averages 0.65. Alternatively, if the entire market-adjusted premium in the leveraged recapitalization represents a reduction in fixed costs, the implied systematic risk of this debt averages 0.40.
منابع مشابه
Financial distress and bankruptcy in highly levered transactions: the comparative roles of debt composition and governance changes
In the HLT literature there is conflicting evidence on the relative impact of debt composition, governance changes and the role of the LBO specialist on the likelihood of financial distress and bankruptcy. In this paper we examine the influence of these factors in a sample of HLTs. Our sample includes not only leveraged buyouts but also leveraged recapitalizations. Observing these transactions ...
متن کاملLeveraged buyouts, whereby purchasers use significant debt to fund transactions, are growing in size and influence. Colin Blaydon and Fred Wainwright explore the rise of private equity
he leveraged buyout (LBO) model has evolved into a powerful mechanism for corporate transformation. Multibillion-dollar buyout funds are busy purchasing private companies and taking public companies private. Nine of the top ten largest buyouts in history have been completed in the past 18 months by private equity houses, and with these record amounts of capital, both in terms of debt and equity...
متن کاملThe disciplinary role of debt and equity contracts: Theory and tests
We study how equity and debt contracts commit investors to discipline managers. Our model shows that the optimal allocation of debt, equity, and control rights depends on which disciplinary action is more efficient. When the efficient action is managerial replacement, then control rights should be allocated to equity holders, and capital structure should consist of equity and long-term debt. Wh...
متن کاملDesign and impacts of securitized leveraged buyouts
Private equity investors have traditionally used innovative financial methods in structuring their leveraged buyouts (LBO) deals. In recent years, they have frequently employed securitization to raise funds on the back of their acquisitions’ operating assets. A distinctive feature of these transactions is that they aim to enhance the securitizing LBO’s debt pay capacity through a set of structu...
متن کاملNo . 7 Leveraged Buyouts in Poland
The dynamic transformation of the Polish economy from a centrally planned to market economy is by now well advanced. The transformation has also contributed to a rapid development of the capital market. However, the leveraged buyout market has hardly been developed yet. The leveraged buyout technique allows investors to take companies over with little of their own capital. Most of the total val...
متن کامل