Leverage acquisitions mainly occur in private companies, but they can also be used in listed companies as (——public-private) in so-called PtP transactions. Because financial sponsors use very high leverage ( or high debt equity ratio ) to increase returns, they are motivated to use as much debt as possible to finance acquisitions. In many cases, this has led to the situation where the company “ is overly leveraged ”,
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which means that they have not generated enough cash flow to repay the debt, which in new data turn leads to bankruptcy or debt-to-equity swaps, in which the equity owner transfers the enterprise’s Control is transferred to the lender. Features This section does not cite any source. Please help improve this section by adding references to reliable sources. Passive materials may be questioned and deleted. (June 2020 )(Understand how and when to delete this template message )
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Leverage acquisitions become attractive because they usually represent a win-win situation for financial sponsors and banks: financial Initiators can use leverage to increase their shareholding rate; compared to the usual corporate loans,Banks can obtain B2C Fax higher profits when supporting leveraged acquisition financing because the interest charged is much higher. Banks can increase the likelihood of repayment by obtaining collateral or guarantees.