A leveraged buyout buys a company using mostly borrowed money, with the company's own assets and cash flow backing the debt. Debt magnifies returns when a deal goes well and losses when it does not.
What the film says
In private equity, you can buy a company, and hand it the loan. It's called a leveraged buyout. Say the price is five hundred million. The firm puts in two hundred of its own. Lenders bring the other three hundred. Now the twist. That loan is backed by the company itself. Its assets. Its cash flow. Every year, cash from the business pays the interest, and pays the loan down. Say it sells later for six hundred, with two hundred of debt left. The firm's two hundred is now four hundred. The price rose a fifth. The stake doubled. Now say it sells for four hundred, with all three hundred still owed. The firm's two hundred is now one hundred. The price fell a fifth. The stake halved. And if the cash runs out, lenders can take control. So why do investors care? Debt magnifies the wins, and the losses. The firm buys it. The company owes it.
In the glossary: Leveraged buyout
A simple example with round numbers, not advice. Terms vary by fund.
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