Reverse Leveraged Buyout

In a leveraged buyout, the buyer has the company take on debt to pay for the deal. Debt gets increased by the transaction...with the money generated used to buy the firm's equity.

A reverse leveraged buyout, as the name implies, works the other way. One of the goals of the transaction is to reduce the company's debt load. The money generated from the sale of equity is used to pay off debt.

The process takes place when an otherwise viable business is overburdened with debt. A buyer will come in, using the cash they infuse into the company to lower the amount of debt with which the company is struggling. Ideally, the lower debt service will make the business more profitable.