corporate-finance
Capital structure is the mix of claims on a company — senior debt, junior debt, hybrids, preferred and common equity — including their priority, covenants and cost. It determines who gets paid in what order and how fragile the company is to a downturn.
Capital structure is who stands where: super-senior ABL, senior term loan, unitranche, mezzanine, holdco PIK, preferred shares, common equity. WACC tries to price the mix for a DCF. Net debt tries to bridge enterprise value to equity. Neither replaces a picture of covenants, maturities and intercreditor terms.
IAS 32 classification (liability versus equity) can differ from the commercial stack — a reminder that accounting labels are not the same as enforcement labels.
An LBO maximises debt until cash and covenants break. A growth raise adds equity to avoid that. A sale requires a payoff waterfall that the SPA funds-flow must match. Due diligence on capital structure is a debt schedule plus the articles.
EV €60m. Senior debt €22m. Shareholder loan €5m (documented as equity-like, treated as net debt by the buyer). Preferred €8m. Residual common €25m. Two advisors arguing about “equity value €38m versus €33m” are actually arguing the shareholder loan. That is capital structure.
Owners want flexibility. Lenders want priority and covenants. Private equity wants a structure that still works if EBITDA drops 20%. Those three sentences explain most recapitalisations.
Optimising WACC in a spreadsheet while ignoring covenant headroom. Forgetting off-balance-sheet factoring. Treating all “equity” as residual when prefs sit above common.
There is no universally optimal structure. Tax, jurisdiction, and the cycle matter. IVS / IPEV valuation still needs cash-flow risk, not just a stack diagram.
Put the stack next to the financials as one structured object: instruments, rates, maturities, who must consent to a sale. That object feeds valuation, a raise, and closing without a last-week reconstruction.