Deleverage

Deleverage

To repay a company's debts in order to make it more attractive to investors. Companies acquire leverage (or debt) to expand operations in the most efficient way possible. However, acquiring too much debt may increase the company's risk so that it may be in danger of default or bankruptcy. Deleveraging reduces these risks.

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Deleverage

What Does Deleverage Mean?

A company's attempt to decrease its financial leverage. The best way for a company to delever is to pay off any existing debt on its balance sheet immediately. If it is unable to do this, the company will be in significant default risk.

Investopedia explains Deleverage

Companies often take on excessive amounts of debt to finance growth. However, leverage substantially increases a firm's risk because if the leverage does not foster growth as planned, the debt risk can become too much for the company to bear. When this happens, all the firm can do is delever by paying off debt. Any sign of deleverage shown by a company is a red flag to investors who require growth in the companies in which they invest.

Related Terms:
• Capital
• Leverage Ratio
• Unlevered Beta
• Debt/Equity Ratio
• Leveraged Buyout—LBO