Question

Explain deleveraging

Answer 1

Deleveraging means paying off the debt by selling assets. During the recession, the firms in order to avoid bankruptcy, sells their assets or generates more cash by increasing sales to payoff their debt to lenders. When firms takes huge loans to increase their growth and later on find it difficult to pay their loans, their debt starts accumulating which hampers their growth and raises the debt to equity ratio. In order to decrease their debt, the firm starts selling their assets.