The Crash of the Revco Leveraged Buyout: The Hypothesis of Inadequate Capital

摘要: The bankruptcy of Revco Drug Stores is one the most notable in history highly leveraged transactions. This study considers allegation that buyout left it without adequate capital to survive. We use Monte Carlo simulation determine Revco's financial coverage ratios and expected probability survival. finds a very low would survive heavy debt preferred stock obligations during first three years following buyout. approach provides useful perspective on efficacy insolvency capitalization tests as evaluated by courts. argue adequacy day going private extremely difficult prove using point-estimate valuation; simulation-based test more appropriate statistic - i.e., probabilistic assessment