Leveraged Recapitalizations in the Private Equity Setting

Sammanfattning: This paper investigates the motives behind leveraged recapitalizations in the private equity setting and the circumstances when they are more likely to occur. Whereas previous empirical studies have been biased towards studying the motives for leveraged recapitalizations in the public setting, this thesis is mainly focused on studying the phenomena after a leveraged buyout has occurred i.e. in the private equity setting. I evaluate 5 hypothesis related to potential motives for leveraged recapitalizations and circumstances when they are more likely to occur. My results indicate a more pronounced usage of leveraged recapitalizations among larger private equity funds. Furthermore some evidence indicate that larger leveraged buyouts, measured as the debt packages associated with them, are more likely to be followed by a leveraged recapitalization. However these results largely disappear when an attempt is made for controlling for differences in time and origin of the LBO. No support is found for holding periods being longer when a leveraged recapitalization has occurred or for more favourable real interest rates being a rationale for a leveraged recapitalization. In addition no evidence is found for a more well regarded reputation of the private equity funds that perform leveraged buyouts with subsequent leveraged recapitalizations compared to the private equity funds that perform leveraged buyouts without subsequent leveraged recapitalizations.