With Musk’s purchase of Twitter he used a leveraged buyout. The chart below from Statista is a good explanation of how this works.
What Is a Leveraged Buyout?
A leveraged buyout (LBO) is the acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loans, along with the assets of the acquiring company.
Leveraged buyouts declined in popularity after the 2008 financial crisis, but they are once again on the rise.
LBOs have acquired a reputation as a ruthless and predatory business tactic, especially since the target company’s assets can be used as leverage against it.
Understanding Leveraged Buyouts (LBOs)
In a leveraged buyout (LBO), there is usually a ratio of 90% debt to 10% equity. Because of this high debt/equity ratio, the bonds issued in the buyout are usually not investment grade and are referred to as junk bonds. LBOs have garnered a reputation for being an especially ruthless and predatory tactic as the target company doesn’t usually sanction the acquisition. Aside from being a hostile move, there is a bit of irony to the process in that the target company’s success, in terms of assets on the balance sheet, can be used against it as collateral by the acquiring company.https://www.investopedia.com/terms/l/leveragedbuyout.asp#:~:text=A%20leveraged%20buyout%20(LBO)%20is,assets%20of%20the%20acquiring%20company. Leveraged Buyout (LBO) By WILL KENTON Updated March 11, 2022 Reviewed by THOMAS BROCK Fact checked by SKYLAR CLARINE