medium · Private Equity accounting-flow

In a dividend recapitalization, why does the IRR often increase even if the total MOIC slightly decreases?

1. Because the sponsor collects an origination fee directly from the lending syndicate for arranging this incremental new debt.
2. Because the recap signals superior business quality to buyers, which by itself is assumed to drive multiple expansion at exit.
3. Because the recap pulls forward a portion of the cash return, benefiting from the time value of money despite the incremental costs.
4. Because the added leverage from the recap mechanically pushes up terminal Enterprise Value the sponsor realizes, regardless of operations.

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