Highly Leveraged Transaction Law and Legal Definition

According to 12 CFR 325.2 [Title 12 -- Banks and Banking; Chapter III -- Federal Deposit Insurance Corporation; Subchapter B -- Regulations and Statements of General Policy; Part 325 -- Capital Maintenance; Subpart A -- Minimum Capital Requirements], highly leveraged transaction means “an extension of credit to or investment in a business by an insured depository institution where the financing transaction involves a buyout, acquisition, or recapitalization of an existing business and one of the following criteria is met:

(i) The transaction results in a liabilities-to-assets leverage ratio higher than 75 percent; or

(ii) The transaction at least doubles the subject company's liabilities and results in a liabilities-to-assets leverage ratio higher than 50 percent; or

(iii) The transaction is designated an HLT by a syndication agent or a federal bank regulator.