Section 6.28 Leveraged Buyouts

• Library: Bankruptcy Practice (2007 Ed. + 2015 Cum Supp)

1. (§6.28) Leveraged Buyouts

A leveraged buyout is the purchase of a target corporation in which the purchasing company uses the assets of the target corporation as collateral for a bank loan obtained to finance the purchase price. Mellon Bank, N.A. v. Metro Commc’ns, Inc., 945 F.2d 635, 645 (3 ^rd Cir. 1991). Leverage buyouts are included within the Bankruptcy Code’s broad definition of a transfer. Id. Leverage buyouts are typically structured so that the acquiring corporation may invest little or no equity. Id. “Thus, a fundamental feature of leveraged buyouts is that equity is exchanged for debt.” Id. A majority of courts hold that leverage buyouts are subject to the Bankruptcy Code’s fraudulent conveyance provisions. Therefore, in certain instances, leverage buyouts may be avoided by a bankruptcy trustee. See, e.g., Kupetz v. Cont’l Ill. Nat’l...