Buyout | Leveraged

: The future cash flows of the acquired business are used to pay down the interest and principal of the debt over time.

: Often called "junk bonds," these are unsecured and carry higher interest rates due to increased risk. leveraged buyout

The "capital stack" in an LBO is often layered by risk and repayment priority: : The future cash flows of the acquired

: The "leverage" comes from using a small amount of equity—typically provided by a financial sponsor like a private equity (PE) firm—and a large amount of debt. : Secured by assets and paid first; carries

: Secured by assets and paid first; carries the lowest interest rates.

The Mechanics and Strategy of Leveraged Buyouts (LBOs) A is a specialized financial transaction in which a company is acquired using a significant amount of borrowed funds to meet the cost of acquisition. In a typical LBO, the debt-to-equity ratio is high, with borrowed capital often accounting for 60% to 90% of the purchase price. Core Structural Components