There are three ways of handling the ESOP repurchase obligation: (1) recycling, (2) redeeming, and (3) releveraging. Recycling and redeeming are the most commonly used strategies. This article compares and contrasts the three methods and addresses the circumstances under which releveraging may be a viable strategy.

The Three Rs: A Brief Overview

Recycling is the exchange of cash for the shares subject to repurchase within the ESOP. Those repurchased shares are then “recycled” within the ESOP as the shares are allocated within the ESOP to those participants whose cash was used to purchase them. Since the shares are purchased from the participant, the distribution to the participant is made in cash. Recycling keeps the same number of shares outstanding and keeps the same number of shares allocated to participants within the ESOP…