Glossary
An acquisition funded predominantly with borrowed money, typically by a private equity sponsor, where the debt is secured against the acquired company's assets and cash flows.
Leveraged Finance
from Banking & Finance
Leveraged finance is the engine room of private equity. When a PE sponsor acquires a company via a leveraged buyout (LBO), the purchase price is funded with a mix of the sponsor's own equity and significant amounts of borrowed money — often 50–70% debt. The debt package typically includes senior secured term loans (ranking first in the repayment waterfall), a revolving credit facility for working capital, and sometimes mezzanine debt or high-yield bonds sitting behind the senior debt. The security package — charges over the target's shares, assets, and bank accounts — is what gives senior lenders their priority. Lawyers drafting these structures must navigate the financial assistance rules (under s.678–680 Companies Act 2006), which restrict a target company from providing security for the debt used to acquire it. The standard workaround — known as whitewash — involves the target's directors confirming the company is solvent and that the assistance is in the company's interest.
Recent Trends
from Banking & Finance
Private credit — lending by non-bank institutions such as direct lending funds — has exploded in the past five years, now rivalling the syndicated loan market for mid-cap leveraged buyouts. Direct lenders like Ares, HPS, and Owl Rock offer speed and certainty of execution, though typically at a higher margin than bank debt. The benchmark rate transition from LIBOR to risk-free rates (SONIA in the UK, SOFR in the US) is now largely complete, but legacy contracts and fallback mechanics still generate work. ESG-linked loans — where the margin adjusts if the borrower hits sustainability targets — have become common, though scrutiny of the rigour of those targets is intensifying. On the restructuring side, the UK's Restructuring Plan (introduced by the Corporate Insolvency and Governance Act 2020) has given distressed borrowers a powerful new tool, allowing courts to impose a restructuring on dissenting creditor classes — a mechanism already tested in major cases like Virgin Active and Adler Group.
Facility Agreement
The core lending contract between borrower and lenders, setting out the terms of the loan including amount, interest rate, repayment schedule, covenants, and events of default.
Syndicated Loan
A loan provided by a group of lenders (the syndicate), coordinated by an arranging bank, spreading the credit risk of a large facility across multiple institutions.
LMA (Loan Market Association)
The trade body that publishes standard-form loan documentation used as the starting point for most European syndicated loan and leveraged finance transactions.
SONIA
The Sterling Overnight Index Average — the near risk-free benchmark interest rate that replaced LIBOR for sterling lending, based on actual overnight transactions in the sterling money market.
Intercreditor Agreement (ICA)
A contract between different classes of lender governing priority of repayment, rights to enforce security, and conduct during a restructuring — critical in leveraged deals with multiple debt tranches.
Financial Covenant
A clause requiring the borrower to maintain specified financial ratios (e.g., leverage, interest cover) tested at regular intervals, breach of which constitutes an event of default.
Security Package
The bundle of charges, pledges, and assignments granted by the borrower and its group companies over their assets in favour of lenders, providing collateral for the loan.