Leveraged buyout

The purchase of a company funded largely with debt secured on its own assets and cash flows. The borrowing magnifies the equity return on any improvement in the business, and the loss on any decline.

Where you will meet it

Leveraged buyout appears in 3 learning outcomes on the CFA syllabus. A few of them:

• Set out the stages at which private equity invests and the ways it exits
  CFA Level I · Alternative Investments

  “Leveraged buyouts acquire mature, cash-generative businesses using substantial debt, and return comes from operational improvement, debt repayment and multiple expansion.”

• Contrast corporate issuers that are publicly owned with those held privately
  CFA Level I · Corporate Issuers

  “A public company can be taken private, often through a leveraged buyout that removes its listing and adds substantial debt to its balance sheet.”

• Explain how CDS can exploit mispricing between distinct markets, for example loans, bonds, equities and instruments linked to equity
  CFA Level II · Fixed Income

  “Equity and credit can also disagree: an expected leveraged buyout raises default risk while lifting the share price, so buy protection and buy the shares.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with L · Glossary