Leveraged

• Term

  Main definition

• Leveraged

  Capitalized with borrowed money or indebtedness. A company may be seeking capital in order to achieve results faster than if the only available cash were the cash generated by current operations. Credit facilities and debt securities can provide capital without diluting the equity owners percentage interests. Selling shares of the equity to raise capital results in percentage ownership dilution to the previous equity owners. Leverage is used in order to maximize potential equity returns, although this cannot be certain to occur because with leverage also comes the debt itself, which encompasses debt service requirements, covenants and default provisions. The debt is an unconditional right to receive payment from the indebted company and equity owners have least priority in terms of payments from the company. Debt once incurred always needs to be repaid or discharged. If the company cannot repay debt when due, and the assets of the company are insufficient to fully repay in full all the debts, the equity usually has become worthless.