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Many companies are "under-leveraged". The example you gave is just an extreme. If borrowing a ton of money means you can build new factories / expand product

Many companies are "under-leveraged". The example you gave is just an extreme. If borrowing a ton of money means you can build new factories / expand product lines / take on new markets, then it might put you in the red for a little while to service the debt, but over time those capital expenditures will pay themselves off. You don't take out one $500m loan, you leverage yourself in many different ways to maximize the cash you can get out of it (with the rates you pay on it increasing over time.) Also note that large companies that lose some money are "worth more" than smaller companies that make a little.

netsp 17y ago
What you are describing is just normal financing. IE using debt or equity to fund additional business activities. My understanding of a leveraged buyout is that it usually means: Buying a company using its own balance sheet. Borrowing at a high rate. Paying back the loan using the companies own cash flow. Selling the debt-ridden company off. I feel like I am missing something. If it can service these massive loans, why isn't it worth more? How does it become worth more after taking on this (expensive) debt? If the company is so under financed that junk bond rate debt is going to be well worth it, any form of financing should do. Why would you need a private equity fund to do that? I never hear private equity funds described as "experts at finding under financed companies and growing them to full potential."