Dealmakers tackle rising rates with new pitch: take the debt with you | Financial Times
‘Portable capital structures’ avoid need to refinance in tough environment for corporate takeovers
✒ Examples of ways to avoid refinancing of debt in a takeover:
- For large stakes, use the “portable capital structures”, to execute the deal with just enough cash to pay for a business’s equity. Buyers can avoid having to raise extra money to pay off the debts of their targets, as is typically the case.
- For smaller stakes, either buy a minority stake or structure the deal to avoid triggering “change of control” provisions that force the buyers to repay all outstanding debts and put new financing in place.
An executive involved in one of these transactions describes: “Selling a business with debt remaining in place is a real asset”.
However, investors such as funds that invest in corporate credit might view this kind of arrangements with scepticism because the capital structure might change substantially (to be more leveraged) as the target company’s debt shifts on to the acquirer’s books.