Leveraged buyout

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Leveraged buyout (LBO)

A transaction used to take a public corporation private that is financed through debt such as bank loans and bonds. Because of the large amount of debt relative to equity in the new corporation, the bonds are typically rated below investment-grade, properly referred to as high-yield bonds or junk bonds. Investors can participate in an LBO through either the purchase of the debt (i.e., purchase of the bonds or participation in the bank loan) or the purchase of equity through an LBO fund that specializes in such investments.

Leveraged Buyout

The acquisition of a publicly-traded company, often by a group of private investors, that is financed with debt. Often, the acquirer in a LBO issues junk bonds in order to raise the capital necessary for the acquisition. A leveraged buyout allows a company to be taken over with little capital, but it can be a high risk endeavor.

leveraged buyout (LBO)

The use of a target company's asset value to finance most or all of the debt incurred in acquiring the company. This strategy enables a takeover using little capital; however, it can result in considerably more risk to owners and creditors. See also hostile leveraged buyout, reverse leveraged buyout.
Case Study Leveraged buyouts (LBOs) became popular in the 1980s when firms such as Beatrice Companies, Swift, ARA Services, Levi Strauss, Jack Eckerd, and Denny's were acquired and then were taken private. With an LBO, a firm's management often borrows funds using the firm's assets as collateral. The borrowed money is used to purchase all the firm's outstanding stock. As a result, a small group of individuals is able to take control of the firm without using any or much of the group members' own money. Following the buyout the new owners frequently attempt to cut costs and sell assets in order to make the increased debt more manageable. Because the group initiating the LBO must pay a premium for the stock over the market price, an LBO nearly always benefits the stockholders of the firm to be acquired. However, investors holding bonds of the acquired company are likely to see their relative position deteriorate because of the increased debt taken on by the company. For example, the leveraged buyout of R. H. Macy & Co. produced a $16 jump in the price of its common stock at the same time the price of its debt securities fell. Most bondholders have no recourse to the increased risks they face because of the greater resultant debt.

Leveraged buyout.

leveraged buyout (LBO) occurs when a group of investors using primarily borrowed money, often raised with high yield bonds or other types of debt, takes control of a company by acquiring a majority interest in its outstanding stock.

Leveraged buyouts, which are often, but not always, hostile takeovers, may be engineered by an outside corporation, a private equity firm, or an internal management team.

References in periodicals archive ?
In his blueprint for restoring financial stability to football Lord Sugar has recommended a ban on leveraged buy-outs. On fans' websites, Wrexham supporters are appalled at Mr Moss' treatment, but also believe he has sold the club "down the river".
Attorneys involved with the bankruptcy say the examiner's recommendation could have wide-ranging implications for many other leveraged buy-outs, by undercutting or reinforcing their legality.
He has broad experience in advising lenders, investors and borrowers on matters including syndicated debt, leveraged buy-outs, real estate finance, asset finance and development/acquisition finance.
It had developed a particular expertise in the realm of private equity-backed, leveraged buy-outs and it suffered when these deals came off the rails.
Paul Kaiser, who led the Newcastle-based six-strong corporate finance department, which had helped leverage a number of mid-market deals on Teesside, said: "Leveraged buy-outs rely on access to cheap debt finance and there is none.
All the way through Romney was building his fortune making over 100% on return of investment for leveraged buy-outs. He and his wife are reportedly worth $250 to $500 million.
This arises because PEFs finance buy-outs by raising capital from pension and insurance funds (around 80% of PEF business is leveraged buy-outs - LBOs).
Si bien, algo en lo que concuerdan los actores de compras apalancadas en la region, es que ya sea en Mexico, donde reina la cautela, o en Brasil, donde parecen seguir en carnaval, estamos lejos de ver aquellos multiplos de 10 veces Ebitda que aparecieron en las grandes Leveraged Buy-Outs de 2007 en EE.UU.
Venture capital interest, leveraged buy-outs, reconsolidation of debt, Graeme Souness and his big gay 'tache...what does it all mean?
* In one of the biggest-ever leveraged buy-outs, Kinder Morgan, an energy distributor and pipeline operator based in Houston, accepted a sweetened $15 billion offer from a consortium of private-equity groups and investors led by its chief executive and co-founder, Richard Kinder.
These type of venture capitalists specialize in leveraged buy-outs and are now prominent in driving acquisitions and mergers throughout western European.
Weiner has considerable expertise in coordinating the real estate aspects of multi-property, multi-jurisdictional projects, including leveraged buy-outs and other corporate acquisitions.