what is a highly leveraged transaction hlt 
a highly leveraged transaction hlt is a bank loan to a company that has a large amount of debt they were popularized in the 1980s as a way to finance buyouts acquisitions or recapitalizations understanding highly leveraged transactions hlts highly leveraged transactions are risky in that they add to a company s debt load and often result in an unattractive debt to equity ratio but the interest income generated from these transactions is significant enough to make them attractive to investors and financial institutions highly leveraged transactions are thought of as being similar to junk bonds and junk bonds may well be issued as part of the deal structure both junk bonds and highly leveraged transactions face significant default risk but hlts are more secure because they have stronger debt covenants due to their structure leveraged buyouts lbos are an example of a highly leveraged transaction highly leveraged transactions often include some type of debt restructuring regardless of what the intention is for the financing this is simply because the existing debt levels of the company must be dealt with for any chance of future success the end result is usually a complicated debt structure with several types of subordinated debt in the restructured entity the lenders behind the highly leveraged transaction often end up with an equity stake in the new enterprise guidance for highly leveraged transactionsguidance for highly leveraged transactions is set out by the u s office of the comptroller of currency occ the federal reserve board and the federal deposit insurance corporation the occ broadly considers a highly leveraged transaction as one where the borrower s post financing leverage when measured by debt to assets debt to equity and cash flow to total debt significantly exceeds industry norms for leverage depending on the particulars of the industry in question customized industry metrics can be substituted for these broader measures for a loan to be defined as an hlt it generally has to fit some combination of the following conditions the guidance on highly leveraged transactions isn t a legal regulation there is an implied high water mark of 6 times debt to ebitda for the restructured entity but this amount has been exceeded many times with highly leveraged transactions as with almost everything the limit is what the market will buy 