medium · Investment Banking valuation-core
A sponsor completes a 'Dividend Recap' by issuing $200 million of new debt and using the proceeds to pay itself a dividend.
If the initial equity investment was $500 million and the recap occurs in Year 2, how does this specifically impact the LBO economics?
- It increases the IRR but does not inherently change the MOIC.
- Issuing new debt for a dividend raises Enterprise Value.
- It reduces the IRR because interest expense outweighs the dividend.
- It decreases the MOIC since total debt levels rise.
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