TY  - JOUR
AU  - Kaplan,Steven N.
AU  - Stein,Jeremy C.
TI  - How Risky is the Debt in Highly Leveraged Transactions? Evidence from Public Recapitalizations
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3390
PY  - 1991
Y2  - September 1991
UR  - http://www.nber.org/papers/w3390
L1  - http://www.nber.org/papers/w3390.pdf
N1  - Author contact info:
Steven N. Kaplan
Booth School of Business
The University of Chicago
5807 South Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-4513
Fax: 773/702-0458
E-Mail: steven.kaplan@chicagobooth.edu

Jeremy C. Stein
Federal Reserve Board of Governors
20th Street and Constitution Ave., N.W.
Washington, DC 20551
E-Mail: jeremy.c.stein@frb.gov
AB  - 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. 
ER  -