Kaplan, Steven N. <br/><br/>
How Risky is the Debt in Highly Leveraged Transactions? Evidence from Public Recapitalizations / 
Steven N. Kaplan, Jeremy C. Stein. 
 - Cambridge, Mass.  National Bureau of Economic Research  1990. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w3390 .
 - Working Paper Series (National Bureau of Economic Research)  no. w3390. .
<br/><br/> June 1990. 
<br/><br/> 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.  
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