What are the risks of leveraged finance?
The risks of leverage
Increased financial risk resulting from the cash flow that will be required to service the debt.
This additional pressure on cash flow can lead to an increased risk of insolvency and bankruptcy during a downturn..
What is financial leverage and credit risk?
Financial leverage refers to the use of debt financing to increase the potential returns on investment, while financial risk refers to the risk that a company may not be able to meet its financial obligations due to factors such as changes in interest rates, market conditions, or its financial structure..
What is leveraged finance credit?
In general, leveraged finance is a credit package that funds the acquisition or recapitalization of an entity or part of an entity.
The entity may be privately or publicly held, and it holds the acquisition debt on its books..
What is the risk of leverage credit?
In turn, the issue of leverage is closely related to the concept of credit risk, which can be defined as the eventuality that one of the parties to a contract does not honour the financial obligations undertaken, causing a loss for the creditor counterpart (Ammann 2001)..
