Cheap options: Never refuse an option:

T he generosity of the credit markets has been a boon to private equity firms. It has allowed them to pile more debt on companies and eased the conditions attached to these loans. Current methods of financing buyouts have both increased the potential upside for private equity and lessened the chances of companies’ imminent failure. One way of looking at this is to say that buyout firms are acquiring cheap options. Finance theory holds that when a company is financed with a combination of debt a...