What is Mezzanine Debt?
Mezzanine debt or mezzanine capital is a form of hybrid capital that has been around for 30 years and which can be structured as either preferred equity or unsecured debt. It is generally referred to the layer of debt that sits bet
Working Capital (WC)
Working Capital (WC) is calculated by subtracting a corporations current liabilities from its current assets. This financial metric determines a corporations operating liquidity and is necessary in understanding how readily available
WORKING CAPITAL MANAGEMENT
A managerial accounting strategy focusing on maintaining efficient levels of both components of working capital, current assets and current liabilities, in respect to each other. Working capital management ensures a company has
What is Capital Structure?
Capital structure describes how a corporation finances its assets. This structure is usually a combination of several sources of senior debt, mezzanine debt and equity. Wise companies use the right combination of senior debt, me
What is a Debt Alternative?
Debt alternatives are a form of debt relief and are referred to in contemporary times as debt restructuring or forbearance. Debt restructuring allows the re-negotiation of payment terms, conditions and payment schedules in orde
In a sponsored spin-off, a financial sponsor (e.g. private equity fund) generally makes a pre-arranged "anchor" investment in a newly spun company (SpinCo). Participation by a sophisticated investor is viewed favourably by the market b
In a split-off, the parent company offers its shareholders the opportunity to exchange their ParentCo shares for new shares of a subsidiary (SplitCo). This tender offer often includes a premium to encourage existing ParentCo shareholders to acc
Capital Markets Implications of Spin-Offs
The separate business entities created in a spin-off sometimes differ in many ways from the consolidated company, and may no longer be suitable investments for some original shareholders. Spun-off companies are of
The parent company will often extract value from the subsidiary before spinning it off by levering up SpinCo and siphoning the cash proceeds as a special tax-free dividend (courtesy of the 100% DRD) or pushing down debt to SpinCo.
The majority of the private equity firms we know and love founded their businesses by focusing on leveraged buyouts. Sounds good, you might think, but what is a leveraged buyout? Read on for a brief intro to LBOs, their advantages and risks, and how the m
In a spin-off, the parent company (ParentCo) distributes to its
existing shareholders new shares in a subsidiary, thereby
creating a separate legal entity with its own management team
and board of directors. The distribution is conducted pro-rat
A spin-off is usually tax-free under Internal Revenue Code (IRC) Section 355, meaning that no taxable gain is recognized by either the parent entity or the parent's existing shareholders. To qualify for favourable tax treatment, the spin-
Divesting a subsidiary can achieve a variety of strategic objectives, such as:
Unlocking hidden value Establish a public market valuation for undervalued assets and create a pure-play entity that is transparent and easier to value