Capital Structure

Read these first

1. 01Agency Costs of Debt and Equity

   Whoever controls a company's decisions is rarely the same person bearing all the consequences, and both debt and equity create their own version of that mismatch, each with a predictable, costly response from the other side.

2. 02Buybacks vs Dividends: The Payout Choice

   Returning cash to shareholders through a dividend or a buyback delivers the same dollar of value in principle, but the two differ sharply in taxes, flexibility, and the signal each one sends the market.

3. 03Capital Allocation Frameworks

   Every dollar a profitable company generates has to go somewhere, reinvestment, acquisitions, debt paydown, dividends, or buybacks, and a capital allocation framework is the ranked, return-driven logic for choosing between them rather than defaulting to habit.

4. 04The Debt vs Equity Financing Decision

   Raising money by borrowing or by selling shares changes who bears the risk, who gets the upside, and how much tax the company pays, and the choice between them is a company's single most consequential financing decision.

5. 05The Pecking Order Theory

   Companies do not finance projects to hit a target debt ratio; they raise money in a strict order of preference driven by information asymmetry, using cash first, then debt, and issuing new stock only as a last resort.

6. 06The Trade-Off Theory of Capital Structure

   A company's optimal amount of debt is the point where the tax savings from one more dollar of borrowing are exactly offset by the extra risk of financial distress that dollar creates, not zero and not the maximum a bank will lend.

Then the rest

1. 07Asset Substitution and Risk Shifting
2. 08Contingent Convertibles (CoCos)
3. 09Debt Capacity and Coverage-Based Debt Sizing
4. 10Debt Overhang and Underinvestment
5. 11Direct and Indirect Costs of Financial Distress
6. 12Dividend Signaling and Clientele Effects
7. 13Finding an Optimal Leverage Ratio
8. 14High-Yield Bond Structures and Call Schedules
9. 15Leveraged Recapitalizations and Special Dividends
10. 16Liability Management Exercises and Creditor-on-Creditor Violence
11. 17Maintenance vs Incurrence Covenants
12. 18Mezzanine Debt and PIK Toggles
13. 19MM Proposition II: Leverage and the Cost of Equity
14. 20Net Debt and What Counts as Debt-Like
15. 21Preferred Equity as a Financing Tool
16. 22Revolving Credit Facilities and Liquidity Backstops
17. 23Signaling Through Financing Choices
18. 24Structural Subordination and Guarantees
19. 25The Leverage and Coverage Ratios Lenders Use
20. 26Valuing the Interest Tax Shield
21. 27Why Companies Issue Convertible Bonds
22. 28Intercreditor Agreements and Lien Priority