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 ?
Pointing to the rate at which Tesla is burning through cash, growing competition from other electric carmakers, and its difficulty hitting production targets, analysts and investors were skeptical that lenders would be willing to finance what would likely be the largest leveraged buyout in U.S.
For the many companies whose leveraged buyouts have failed, however, the negative repercussions have been far-reaching.
The firms that you read about in the newspapers these days as "private equity firms" are almost entirely leveraged buyout firms.
KKR, probably the most exclusive leveraged buyout firm in the world, has acquired and turned around many of the most famous companies in the U.S., such as RJR Nabisco and Beatrice Foods.
into a private company through a leveraged buyout appears to reflect its executives' desire to continue the turnaround already under way without faring the scrutiny of Wall Street, according to industry analysts.
They also brought far greater acquisitiveness and larger professional staffs to middle-market acquisitions and, in doing so, they "institutionalized" the leveraged buyouts business.
* This study investigates the consequences of leveraged buyouts (LBOs) on operating performance using a sample of 44 going-private transactions completed in the period 1985-1989.
In deciding this case, Federal District Judge Holderman rejected the assertion of the defendants that the law of fraudulent conveyance does not apply to leveraged buyouts. First, the court found the language of the Bankruptcy Code itself "in no way limits [its] application so as to exclude LBOs." The Code's definition of a "transfer" of property and the statute invalidating a fraudulent transfer are both very broad and present no basis for finding an exemption for leveraged buyouts.
Leveraged buyouts (LBOs), the most highly leveraged acquisitions, mushroomed from less than $5 billion in 1983 to more than $60 billion in 1989, the year that included the $25 billion RJR-Nabisco transaction.
Many of these terms were coined to reflect the wave of acquisitions, mergers, leveraged buyouts and muggings that have swept over business since the Sixties.
Asquith and Wizman find similar results for a different sample of leveraged buyouts and restructurings.[4]
The effects of leveraged buyouts and corporate restructuring on the economic efficiency of America's manufacturing sector are being debated on the floor of Congress and in the op-ed pages of the nation's newspapers.