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Disciplining management or guiding management: aligning interests in securitized leveraged buyouts

Disciplining management or guiding management: aligning interests in securitized leveraged buyouts
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 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.
1044-8136
3-8
Bouvier, Laurent
32a423b7-5a6f-485e-a54e-2616556e0773
Nisar, Tahir M.
6b1513b5-23d1-4151-8dd2-9f6eaa6ea3a6
Bouvier, Laurent
32a423b7-5a6f-485e-a54e-2616556e0773
Nisar, Tahir M.
6b1513b5-23d1-4151-8dd2-9f6eaa6ea3a6

Bouvier, Laurent and Nisar, Tahir M. (2015) Disciplining management or guiding management: aligning interests in securitized leveraged buyouts. Journal of Corporate Accounting & Finance, 26 (2), 3-8. (doi:10.1002/jcaf.22013).

Record type: Article

Abstract

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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e-pub ahead of print date: 19 November 2014
Published date: January 2015
Organisations: Southampton Business School

Identifiers

Local EPrints ID: 380259
URI: https://eprints.soton.ac.uk/id/eprint/380259
ISSN: 1044-8136
PURE UUID: c2e152ab-0f53-4cdf-8ee9-1b84dd4cc686

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Date deposited: 08 Sep 2015 09:10
Last modified: 17 Jul 2017 20:36

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