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 ?
And Liverpool were within hours of administration when previous US owners Tom HicKs and George Gillett left them saddled with debts of pounds 200m following their leveraged buy-out.
TWINSBURG, Ohio--Was the 1986 leveraged buy-out of Revco D.
For retailers in coming years, more conservative times should reduce the number of poorly-financed transactions or leveraged buy-outs.
and European financings covering acquisitions, leveraged buy-outs, fund financing, real estate financing and asset-based loans.
The group is widely recognised for its expertise in the premier mid-market segment and on international leveraged buy-outs and fund formations, and has gained extensive experience acting for institutions, fund managers, investors, debt providers and management teams.
Last year equity contribution into all buy-outs exceeded 50%, where in 2007 -when leveraged buy-outs were at their peak - it was just over 30%.
It reads: "Goldman Sachs provides advice on the full range of strategic transactions, including mergers, sell-side and buy-side advisories, leveraged buy-outs, joint ventures, strategic alliances, anti-raid and raid defenses, fairness opinions and spin-offs, split-offs, divestitures and other restructurings.
And certain sorts of lending - for example, leveraged buy-outs - stopped as companies found it difficult to raise money.
Daily slog on the City's bourse, Ever climbing vertiginous debt, Never to be repaid, of course, Leveraged buy-outs, more options yet.
Leveraged buy-outs leave companies with huge amounts of debt and the consequent need to lay off workers.
It specializes in large leveraged buy-outs and manages $9 billion worth of funds covering a portfolio of 54 European companies and 12 Asian companies.
Karr moved from Citibank to Lehman Brothers, the investment banking firm, where he was in charge of the evaluation of corporate real estate portfolios in connection with leveraged buy-outs, restructurings, mergers, acquisitions, due diligence in the formation of investment pools and other syndicated equities, and the underwriting of public real estate offerings.