How Risky is the Debt in Highly Leveraged Transactions? Evidence from Public Recapitalizations
This paper presents estimates of the systematic risk of the debt in public leveraged recapitalizations. We calculate the systematic risk of the debt as a function of the difference between the systematic equity risk before and after the recapitalization. The increase in equity risk is surprisingly small after a recapitalization, ranging from 28% to 52% depending on the estimation method. Under the assumption that total company risk is unchanged, the implied systematic risk of the post-recapitalization debt in twelve transactions averages 0.67. Under the alternative assumption that the entire market adjusted premium in the leveraged recapitalization represents a reduction in fixed costs, the implied systematic risk of this debt averages 0.42.
|Date of creation:||Jun 1990|
|Date of revision:|
|Publication status:||published as "How Risky is the Debt in Highly Leveraged Transactions?" From Journal of Financial Economics, Vol. 27, No. 1, pp. 215-245, (October 1990).|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Baldwin, Carliss Y & Mason, Scott P, 1983. " The Resolution of Claims in Financial Distress: The Case of Massey Ferguson," Journal of Finance, American Finance Association, vol. 38(2), pages 505-16, May.
- Scholes, Myron & Williams, Joseph, 1977. "Estimating betas from nonsynchronous data," Journal of Financial Economics, Elsevier, vol. 5(3), pages 309-327, December.
- Jensen, Michael C, 1988. "Takeovers: Their Causes and Consequences," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 21-48, Winter.
- Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
- Dimson, Elroy, 1979. "Risk measurement when shares are subject to infrequent trading," Journal of Financial Economics, Elsevier, vol. 7(2), pages 197-226, June.
- Steven Kaplan, 1989. "Management Buyouts: Evidence on Taxes as a Source of Value," Journal of Finance, American Finance Association, vol. 44(3), pages 611-632, 07.
- Kaplan, Steven, 1989. " Management Buyouts: Evidence on Taxes as a," Journal of Finance, American Finance Association, vol. 44(3), pages 611-32, July.
- Altman, Edward I, 1989. " Measuring Corporate Bond Mortality and Performance," Journal of Finance, American Finance Association, vol. 44(4), pages 909-22, September.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:3390. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.