Highly Leveraged Transaction (HLT)
A bank loan given to a company which is already in huge debt is high leveraged transaction. It results in doubling the liabilities of the borrower because the acquisition or recapitalization transaction is made. The high leveraged company means that already huge loans has been taken the interest rate might also be high too.
Highly leveraged transaction occurs when a financial institution lends money to a company which is already in some financial problems. For highly leveraged transaction it is necessary the borrower company is under debt and lender has controlling position in the borrower’s equity. IF the borrower company defaults the creditors can held them for debt repayment as they have a controlling position of borrowers’ equity.
It is sort of a take over of a company so that the matters can be run in more efficient way or it can be broken down so as to repay the liabilities that get doubles after the transaction. Due to the high Debt-Equity Ratio the borrowed money is either repaid with the selling of the company in profit or running it more efficiently. The acquired company’s corporate sector is redesigned or some parts of the company are taken off so as to increase the chances of profit maximization. The company is usually made private so that a free hand can be given to the management and sometimes it is sold in pieces to get a good rate of return.
One advantage is that with the restricting process like changing the management and removing unnecessary departments can make the leveraged transaction profitable. However, with the change in the structure the employees get disturbed a lot. In addition to it due to the downsizing technique the company will give a negative impact in the market regarding the economic position and prosperity. Sometimes these takeovers are considered hostile and against the wishes of the managers creating a negative impact on the overall position. Although is the company is taken over by a huge corporation the chances are that with the restructuring the acquired company can regain its profitable position but still during a transaction like this the feelings of the employees must be taken into consideration.
- Debt ratios
- Liquidity ratios
- Profitability ratios
- Asset management ratios
- Cash Flow Indicator Ratios
- Market value ratios
- Financial analysis
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- IFRS Interpretations (EU)
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Most WantedFinancial Terms
- Most Important Financial Ratios
- Debt-to-Equity Ratio
- Financial Leverage
- Current Ratio
- Interest Coverage Ratio (ICR)
- Solvency Ratio
- Receivable Turnover Ratio
- Return On Capital Employed (ROCE)
- Accounts Payable Turnover Ratio
- Debt Service Coverage Ratio
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