Leveraged buy-out transactions (LBOs) can provide an attractive option for acquisition financing, by using secured corporate debt to pay for the equity interests being acquired and allowing the purchaser to realize the value of its investment over time.
When an acquired company ultimately is unable to sustain the debt load or other business conditions later require it to seek bankruptcy protection, the debtor company may review the LBO transaction to determine whether the payments made to shareholders, and debt incurred, may be avoided under federal and state fraudulent conveyance theories based on an argument that the company received less than reasonably equivalent value in exchange.1
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