Leveraged Buyout

“An LBO is the acquisition of a target company financed by debt that is secured by the assets of the target company and paid with the target’s future cash flows. [...] The acquiring company borrows money from the lending bank to purchase the target company. That loan is secured by the target’s assets and future cash flows. The acquirer might also use some of its own capital for the purchase along with the borrowed funds. The acquirer then uses these funds to buy the target from the target’s current shareholders, often at a large premium, and the acquirer becomes the new owner".

Source: https://www.yalelawjournal.org/note/ex-ante-review-of-leveraged-buyouts

By: Laura Femino, for Yale Law Journal