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What Does it Mean to Deleverage?

When a company “deleverages,” it means it is attempting to shrink the amount of debt on its books relative to its assets.

In some cases the act of deleveraging requires a company to sell-off/liquidate key assets in order to pay down debt, which ultimately means downsizing as well. A company may choose to deleverage as a strategic tactic, but often times they are forced to as a result of economic circumstances.

A recent example was in the aftermath of the 2008 financial crisis, when banks underwent a significant deleveraging period to increase their capital ratios, as required by new laws.

Keywords: leverage, financial crisis, debt, 2008, banks, liquidation value, debt-to-capital ratio, deleverage,