Leveraged Buyback

A significant re-purchase of a company's own shares, financed through debt. Buybacks are done for a variety of reasons: 1) To raise the stock's price; 2) to avoid over-capitalization; and 3) to defend the company from a hostile take over attempt.

In recent years, company share repurchases have been on the rise. In 2007 alone, companies in the S&P 500 spent over $580 billion buying back their own shares. Some critics however question buybacks that are made simply because a company may have a lot of free cash on its balance sheet. Quite often companies can end up hurting themselves by repurchasing stocks at inflated levels only to see their share price drop soon after the buyback.


Investment dictionary. . 2012.

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