Amphenol Corporation: The KKR Leveraged Recapitalization

In late May 1997, Felicia Miranda at the Securities and Exchange Commission saw yet another leveraged recapitalization transaction pass her desk. She wondered whether or not the SEC would have to be more proactive in addressing the issue of leveraged recapitalization accounting. Over the last two years, Mrs. Miranda had seen dozens of leveraged recapitalizations and understood the intricacies of the practice well. Nevertheless, she still believed that many of the deals her office saw had one goal in mind — the avoidance of goodwill. Mrs. Miranda wondered whether the leveraged recapitalization structure was commensurate with the economic realities of the transaction or whether the transactions were just leveraged buyouts in disguise? As the protector of the public with regard to securities issues, she wondered what the effects on remaining shareholders would be from such recapitalizations? She understood that the hard and fast rules behind such an accounting practice were relatively unclear and wondered whether now was the time to come down with an authoritative bulletin from the Commission, particularly in light of the FASB’s project on business combinations?