What Is Leveraged Finance?

LevFin structures and underwrites debt for borrowers rated below investment grade (typically BB+/Ba1 and lower). Its core products are leveraged loans (floating-rate, senior secured, syndicated to institutional investors and CLOs) and high-yield bonds (fixed-rate, often unsecured, sold to high-yield funds). LevFin works hand-in-glove with the financial sponsors group because private equity firms are its biggest clients — every leveraged buyout needs someone to raise the debt. The group advises on how much leverage a company can support, the debt structure (senior vs. subordinated), pricing, and covenants, then commits the bank's balance sheet to underwrite the financing.

Leveraged loans are senior secured, floating-rate (priced over SOFR), can be prepaid with little/no penalty, and sit at the top of the capital structure — so they recover more in a default and price tighter. High-yield bonds are typically unsecured or subordinated, fixed-rate, have call protection (you pay a premium to prepay early), and longer maturities — so they carry higher coupons to compensate for the added risk. A typical LBO capital structure stacks a revolver, a senior secured term loan (TLB), and then high-yield notes beneath it. The absolute priority rule governs who gets paid first if the company defaults.

In an LBO, a private equity sponsor buys a company using a mix of equity and a lot of debt; LevFin raises that debt. The amount is sized off leverage multiples — Debt/EBITDA — that the company's cash flows can service, plus coverage ratios like EBITDA/Interest. Higher, more stable cash flows support more leverage and a more aggressive structure. The debt is then paid down over the hold period via a cash flow sweep, and deleveraging is a key driver of equity returns. Understanding LevFin means understanding why a sponsor can put down 30–50% equity and finance the rest — and how that magnifies returns.

DCM raises debt for investment-grade issuers (lower risk, thinner spreads, lighter analysis); LevFin raises debt for below-investment-grade issuers (higher risk, wider spreads, far deeper credit and structuring work). Because LevFin underwrites buyout debt, the modeling is closer to M&A and PE than to plain DCM — you build LBO and credit models, stress-test cash flows, and analyze covenants. That overlap with sponsor work makes LevFin a strong launchpad into private equity and private credit. It's one of the more technical and exit-friendly product groups in banking.