Hi all,
I'm pretty poorly versed when it comes to private equity and leveraged buyouts. But how is it that when Elon buys twitter, the company now has debt on its balance sheet?
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I think the best analogy for a leveraged buyout is this: you want to buy an apartment with debt. You rent out the apartment and make sure the rent is covering the principal + interest. In this case, the owner is musk, the apartment is twitter, the paying participant is the company itself who isn't recording 'rent revenues' but advertising revenues.
Does this make sense?
Yes that makes sense. I buy something, at least *partially* with debt, and then pay the interest with the cash flows from that thing. I didn't realize that in an LBO that debt is actually paid down (i.e. the "principal" is reduced?), though. Moreover, I just would've thought that if Company A uses debt to buy Company B, that that debt would go on the purchaser's balance sheet (Company A).
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