Corey Rosen
Judge Rules Releveraging an ESOP Is Not a Fiduciary Violation
Many mature ESOP companies use releveraging to help manage their repurchase obligations and ensure there are shares to allocate to new participants over time. Releveraging especially helps manage repurchase costs when the company’s share price increases quickly. In releveraging, ESOP companies borrow money to purchase shares, typically from former employees, and then allocate those shares over the life of the loan. This new debt can have a temporary impact on share value. Part of that impact is offset by the additional shares allocated to existing participants, but many companies create a floor price plan that protects at least more senior employees from a reduction in their stock value as a result of the additional debt.
