What does "leveraged finance" specifically involve?

Leveraged finance refers specifically to the financial practice of providing capital to companies or transactions that already carry high levels of debt. This type of financing is typically used in scenarios where an entity may be seeking to amplify its return on equity by taking on additional debt beyond what is traditionally manageable. These transactions usually involve companies that have a significant amount of leverage, meaning they are using borrowed funds to finance investments, which can increase both potential returns and risks.

In leveraged finance, lenders focus on the cash flow or operating income of the firm rather than only on its asset base or equity. This makes option B the correct answer, as it highlights the key characteristic of leveraged finance: providing funding to highly leveraged companies. The approach is often employed in mergers and acquisitions, buyouts, or recapitalizations, where businesses might use leverage to finance their growth or restructure their capital.

The other choices do not encapsulate the essence of leveraged finance accurately. The focus on long-term equity growth does not align with the core principle of leveraging debt. Funding based solely on physical assets ignores the operational risks and financial metrics involved in leveraged transactions. Lastly, loans requiring minimal collateral do not accurately reflect leveraged finance, as the process often entails a careful evaluation of a firm's cash flows rather than just