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LBO: Secured Promissory Note


Abstract

Leveraged buyouts utilize borrowed money to finance a deal. A leveraged buyout (LBO) occurs when an investor, typically a financial sponsor, acquires a controlling interest in a company's equity and where a significant percentage of the purchase price is financed through leverage (borrowing). The acquired company's assets are the collateral for the borrowed capital. LBOs usually use a combination of debt instruments, typically from banks and debt markets.

A secured promissory note is one that is backed by collateral. Therefore, if the payor violates the terms of the note, the payee can seize the collateral.