Debt Financing

Michael Milken was the former head of Drexel Burnham Lambert and one of the key pioneers in engineering the use of junk bond debt financing to facilitate mergers and acquisitions. He was subsequently convicted of violating SEC laws and other bad stuff.

While Milken spends his current time as a philanthropist with a focus on medical research (his efforts have basically cured prostate cancer), his legacy is interesting. We note him here under this term just because he was such a seminal force in the debt financing realm, and hey, how many types of cancer have you cured?

The use of debt financing in order to expand business happens when a company issues bonds or other kinds of debentures in exchange for the necessary capital required for the undertaking.

Why debt to raise capital instead of selling equity or ownership stakes? Dilution. When you borrow money and pay it back, you still own whatever portion of the company you owned before you raised capital. If you sell ownership stakes to new investors, you own...less. When low prevailing interest rates make borrowing easy, debt lending is all the more appealing. Duh.