Leveraged finance is utilized by Companies for bringing in an asset, repurchasing shares, making an acquisition, or buying out another company. This type of debt is used for the growth of the company to acquire capital for investing in another asset. This method of financing is favored by companies as their investment is very less. The risk is high if the asset investment is not performing as expected. The risk of any loss is costly due to the interest expenses. Leveraged finance investment banking division is a department in a bank whose role is advising on raising debt.
Role of Investment Banks in Leveraged Finance
Leveraged Finance in the Investment Banking division of a Bank, acts as an intermediary between the investors and the company looking to raise funding.
- They are mainly responsible for services related to the client’s leveraged buyouts. These include managing, structuring, and providing advice on the financing of debts for acquisitions.
- Investment Banks play a vital role in leveraged finance. With increasing competition and pressures being placed on expanding business, companies are leaning towards leveraged finance for raising capital.
- Many firms looking to broaden their horizons and streamline their processes turn to investment banking for advice. They need knowledge on potential targets, conduct valuation, and the tactics for raising funds. The investment banking team may function from the seller’s set or the buyer’s set.
How do Investment Banks perform these roles in Leveraged Finance?
- Investment banks work on both sides of leveraged finance. On the buyer’s side, they help raise capital and in selecting the company to be acquired. On the seller’s side, they help in giving accurate valuation and in getting the highest bidder.
- As they deal with mergers and acquisitions very often, they are experts in valuing other companies and investments. They have resources available to ascertain the credentials of the target. They have a clear understanding of the target and lookout for ways to cut costs.
- Investment banks are one of the key players in deciding the financing structure of a company. Their role is ensuring the usage of debt, especially leveraged finance as much as possible. Having said this, they have to keep an eye out to see that the cash flow does not turn negative due to the increase in interest costs.
- In the case of a leveraged buyout, investment banks may need to deal with the existing lenders of the target company. They may include commercial banks and bondholders. Some lenders may choose to continue while others may want their funds back because of the increased risks. Investment banks have to negotiate with these creditors and at times, have to arrange funds to pay them back.
- Investment banking includes the function of securing leveraged finance. They have to gain approvals and carry out the process to its end.
Why do you need a partner for leveraged finance?
Every investment banking firm/division may not be able to pull off a leveraged finance deal. It requires a lot of skill and expertise. By partnering with Acuity Knowledge Partners, investment banks will get assistance with acquisition financing, project finance, debt refinancing and restructuring, and leveraged loans. They are equipped with in-depth functional knowledge of advisory and funding aspects of leverage finance. They have wide sector coverage and experienced teams to undertake complex tasks. It is time and cost-saving to engage an expert with the right technology.