Solvency Opinions for Leveraged Dividend Transactions

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Paying a special dividend that renders a company insolvent, however, has serious consequences for boards of directors.

With tax reform clarified and favorable credit market conditions, private equity sponsors and boards of directors are deliberating leveraged dividend proposals. Paying a special dividend that renders a company insolvent, however, has serious consequences for boards of directors. Relying on a third-party solvency opinion creates a “safe harbor” (under state laws) for directors that approve dividend payments and stock repurchases.

Solvency Opinion Overview

A solvency opinion is a collection of determinations as to whether, after giving effect to a transaction, (i) the company’s assets, at a fair valuation, would exceed its debts, (ii) the company would not be left with unreasonably small assets (or capital), and (iii) the company would be able to pay its debts as they come due. In the United States, these determinations arise from bankruptcy and fraudulent transfer statutes. 

Solvency opinions also typically address the sufficiency of the company’s surplus to pay a distribution, pursuant to corporation, partnership and/or LLC laws in the state of domicile. 
Company officers may rely on a solvency opinion when providing an officers’ solvency certificate, which is typically a closing condition of a financing transaction. 

The Duff & Phelps Difference

Duff & Phelps serves as an independent advisor to boards of directors, special committees and other fiduciaries, and in this capacity, we are a leading global provider of fairness and solvency opinions in corporate transactions. Our team has particular expertise in situations where advisor independence is paramount, and scrutiny is elevated.

  • Since 2005, Duff & Phelps rendered over 750 solvency opinions aggregating $3.3 trillion in deal value. 
  • We give each engagement senior level attention; every assignment is overseen by a Managing Director in the Transaction Opinions Group and every opinion is approved by our Transaction Opinions Review Committee.
  • We thoroughly document our process, analysis and conclusions and stand ready to defend our work should the need arise.

Who Engages Us?

  • Companies and their boards of directors
  • Private equity firms
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