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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 ratios vary significantly among regions and target industries. 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 interest rates. In big purchases, debt and equity can come from more than one party.
A dividend recapitalization (often referred to as a dividend recap) in finance is a type of leveraged recapitalization in which a payment is made to shareholders. As opposed to a typical dividend which is paid regularly from the company's earnings, a dividend recapitalization occurs when a company raises debt —e.g. by issuing bonds to fund ...
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 (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.
Their primary purpose, however, is to fund M&A activity, specifically leveraged buyouts, where the buyer uses the debt markets to acquire the acquisition target's equity. In the U.S., the core of leveraged lending comes from buyouts resulting from corporate activity, while, in Europe, private equity funds drive buyouts.
Leveraged investing lets traders use debt to increase their buying power. Investors borrow money and then purchase extra shares of an investment. If the investment goes up, they’ll make more ...
As the US economy begins to reopen, however, direct lenders are lining up to take on significant slices of riskier debt, including second-lien loans. Private debt investors bet on leveraged ...