What is the difference between leveraged finance and syndicated bank debt?

Question:

What is the difference between leveraged finance and syndicated bank debt?

Debt:

Debt is the money borrowed by a business to carry out its daily operations or invest in new projects. It is provided by financial institutions (Banks & NBFCs) and other sources. Debt has specific terms like interest rate and time for repayment.

Answer and Explanation:

By defining these terms, you will see they are quite different.

Leveraged finance: Leveraged finance is when a business takes on a high proportion of debt relative to its equity or ownership interest. This type of company will pay a high rate of interest as they have a high chance of default.

Syndicated bank debt: Syndicated debt is financing provided to the borrower by a group of lenders. These types of loans include fixed funds and credit lines. These types of funds are granted when the cost of the project is too high to be financed by an individual lender. It can also be used to spread the risk of a transaction among different lenders.


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Sources of Long-Term Financing

from Business 100: Intro to Business

Chapter 23 / Lesson 4
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