The management of Absco Corporation forms Basco Corporation. Basco Corporation issues bonds to institutional investors to raise cash, with which it purchases the assets or stock of Absco Corporation. The assets of Absco Corporation are used as security for the bonds issued by Basco Corporation. This action by management is best described as a:

Question

The management of Absco Corporation forms Basco Corporation. Basco  Corporation issues bonds to institutional investors to raise cash, with which it purchases the assets or stock of Absco  Corporation. The assets of Absco  Corporation are used as security for the bonds issued by Basco  Corporation. This action by management is best described as a:

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This scenario describes a leveraged buyout (LBO), where a company is acquired using a significant amount of borrowed money to meet the cost of acquisition. The assets of the company being acquired (Absco Corporation) are often used as collateral for the loans taken out by the new entity formed to facilitate the buyout (Basco Corporation).

The Management of Absco Corporation Forms Basco Corporation