reverse leverage

Reverse leverage

Occurs when the interest on borrowings exceeds the return on investment of the funds that were borrowed.

Reverse Leverage

1. A situation in which a company is spending more money than it is receiving. While this is common in many companies, especially in the first year or two of operation, it is obviously unsustainable in the long-term. A company with reverse leverage often has to resort to loans or equity financing in order to keep its doors open. It is also called negative cash flow.

2. A situation in which the interest a company pays on a loan exceeds the return on any investments acquired with that loan. This usually results in a loss to the company, but some companies may do this deliberately to reduce their tax liabilities. It is also called reverse carry.

reverse leverage

A situation in which the interest rate on a mortgage is so high that one cannot obtain any financial benefits from a property because of the debt service.

References in periodicals archive ?
The Saudis, in a form of reverse leverage, have often been able to use the American preoccupation with access to pursue more weapons deals.
Rather than creating "cooperative" terrorist partners, US military aid has produced reverse leverage: The more aid given to a terror outfit, the less likely it is to do what the US wants.
Further principles encourage the disclosure of related fees and expenses, including the eventual impact of securities lending on these, as well as complete, accurate and understandable disclosure to address the types of risks investors may be exposed to particularly through ETFs using complex strategies that may involve the use of leverage (or reverse leverage).
But it's useful to have some benchmarks -- and to understand the subtle reverse leverage that is at work here.