A dividend that renders a company insolvent has serious consequences for boards of directors.
Leveraged loan issuance in 2021 is already at a record, with significant volume used for dividend recapitalizations. This trend will likely continue in Q4, driven by investor demand for yield and uncertainty around future tax policy. Relying on a third-party solvency opinion creates a “safe harbor” (under state laws) for directors that approve dividend payments and stock repurchases. Duff & Phelps, A Kroll Business, is your trusted advisor for Q4 year-end leveraged dividend recap transactions and a globally recognized leader in solvency opinions.
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 laws.
Solvency opinions also typically address the company's ability 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 officer's 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 950 solvency opinions for transactions aggregating $4.5 trillion in deal value.
- We give each engagement senior level attention; each 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.