A leveraged buyout (LBO) is the acquisition of a company financed primarily with debt. In a typical structure, debt comprises between 80% and 90% of the purchase price, and the target company’s assets are pledged as collateral for the deal.
The debt structure will comprise different instruments and tranches:
- Bank debt
- High yield bonds
- Mezzanine debts
The interest expense on the debt is paid using the cash flow generated from company operations.