Leveraged finance

Funding a company with more debt than considered normal for that company or industry. More-than-normal debt implies that the funding is riskier, and therefore more costly, than normal borrowing. It is usually employed to achieve a specific and often temporary objective. This can be to make an acquisition, to effect a buy-out, to repurchase shares or fund a one-time dividend, or to invest in a self-sustaining cash-generating asset. This kind of financing generally has two main instruments - leveraged loans and high-yield bonds. Leveraged loans, which are, are essentially loans with a high rate of interest (often 125 basis points or more over LIBOR) to reflect a higher risk posed by the borrower. A key instrument for leveraged finance, particularly in leveraged buy-outs, is mezzanine debt.
Essential for leveraged finance transactions is thoroughly identifying, analysing and solving and pricing risks.