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In finance, leverage, also known as gearing, is any technique involving borrowing funds to buy an investment.. Financial leverage is named after a lever in physics, which amplifies a small input force into a greater output force, because successful leverage amplifies the smaller amounts of money needed for borrowing into large amounts of profit.
Debt (in the form of bonds) has some advantages over equity as a way of raising money, since it can have tax benefits and can enforce a cash discipline. The reduction in equity also makes the firm less vulnerable to a hostile takeover. Leveraged recapitalizations can be used by public companies to increase earnings per share.
Debt ratios vary significantly among regions and target industries. Diagram of the basic structure of a generic leveraged buyout transaction. Debt for an acquisition comes in two types: senior and junior. Senior debt is secured with the target company's assets and has lower interest rates. Junior debt has no security interests and higher ...
The economic turmoil in the capital markets did not bode well for private equity dealmaking in the third quarter. US companies raised just $10.6 billion of leveraged loans to fund buyouts over the ...
Debt management and debt consolidation are two widely used strategies for helping individuals manage excessive debt and regain financial stability. Debt Management vs. Debt Consolidation: Which is ...
As with other leveraged transactions, if a firm cannot make its debt payments, meet its loan covenants or rollover its debt it enters financial distress which often leads to bankruptcy. Therefore, the additional debt burden of a leveraged recapitalization makes a firm more vulnerable to unexpected business problems including recessions and ...
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