Disciplining management or guiding management: aligning interests in securitized leveraged buyouts
Leveraged buyouts (LBOs) are generally explained in terms of a governance mechanism that disciplines management. It is operationalized by increasing the leverage of a firm, which has an implicit consequence of constraining management in the use of free cash flows. However, under a relatively new for...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
2015-01.
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| Subjects: | |
| Online Access: | Get fulltext |
| Summary: | Leveraged buyouts (LBOs) are generally explained in terms of a governance mechanism that disciplines management. It is operationalized by increasing the leverage of a firm, which has an implicit consequence of constraining management in the use of free cash flows. However, under a relatively new form of LBO known as securitized leveraged buyouts, private equity firms raise funds on the back of the acquired company's operating assets. A securitized LBO imposes explicit restrictions on management with regard to its freedom for carrying out strategy decisions. Using the case study of Hertz, we show how a securitized LBO can be structured more efficiently and what important decisions must be made in order to improve its debt service capacity. |
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