How is enterprise value affected by debt repurchases?
Have a simple question for you guys that you might be able to help me with.
I am thinking about a situation where the company is levered pretty high, and could repurchase debt to delever over next couple of years. I think these repurchases would be at par, so not a distressed exchange.
My question is how does debt repurchases or buybacks affect the equity value of a public company? If it is funded via OCF and not cash on hand, how does the equity value change and the overall EV?
Does the sign of a buyback of debt (as opposed to equity) increase the equity value and does this deleveraging mechanism ever act as a catalyst to purchase the equity that is the most junior on the cap structure?
Trying to wrap my head around this
Book equity or market?
For EV, negligible change if at par. Cash down by amount paid plus fees/commissions, debt down by book value of debt. If you have unamortized u/w discounts, they get accelerated I believe which would also have a small effect.
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