Miguel Tepoztlán: The Structural Fragility of Leverage

Financial leverage is frequently praised as a mechanism for capital efficiency. However, under an elevated cost of capital, leverage functions strictly as a destroyer of structural error tolerance.

With heavy fixed debt obligations, minor variances in operating cash flow rapidly transform into severe solvency risks. Leverage relies on the fundamentally flawed assumption of frictionless refinancing. When credit windows compress, this underlying fragility is violently exposed.

True risk management mandates focusing on the margin of safety. Entities requiring constant debt rollovers surrender their independence to credit markets. Capital preservation demands evaluating assets based purely on liquidity runways, entirely ignoring the artificial returns generated by over-leverage.