Leveraged Buy-Outs (LBOs)

A transaction in which the buyer of a debtor gains control of the debtor by purchasing the equity of the debtor with borrowed funds, securing the loan by granting the lender a lien on the assets of the debtor. Leveraged buy-outs are often attacked in bankruptcy as fraudulent transfers based on the theory that the debtor did not receive reasonably equivalent value in exchange for the creation of the lien on the debtor’s assets to secure the loan.

Bankruptcy Code § 548(a). See also Fraudulent Transfer, Reasonably Equivalent Value.

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