What you are describing has nothing to do with an LBO. You are just describing debt and bankruptcy. In an LBO the debt is part of a transaction to buy the comp

What you are describing has nothing to do with an LBO. You are just describing debt and bankruptcy. In an LBO the debt is part of a transaction to buy the company and the seller is rarely desperate. Banks wouldn't lend into an LBO of a company that is on its last legs. Also, the probability that a lender gets out of a liquidation whole is slim. The probability in a case where the main asset is IP is basically zero.