English, Article, Journal or magazine article edition: How Risky is the Debt in Highly Leveraged Transactions? Evidence from Public Recapitalizations Steven N. Kaplan; Jeremy C. Stein

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Bookmark: http://trove.nla.gov.au/version/140268
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • How Risky is the Debt in Highly Leveraged Transactions? Evidence from Public Recapitalizations
Author
  • Steven N. Kaplan
  • Jeremy C. Stein
Physical Description
  • preprint
Notes
  • 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 marketadjusted premium in the leveraged recapitalization represents a reduction in fixed costs, the implied systematic risk of this debt averages 0.42.
  • RePEc:nbr:nberwo:3390
Language
  • English
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