What is a disadvantage of capital expenditures when compared to operational expenditures in the context of leveraged finance?

Capital expenditures (capex) typically involve substantial upfront investments in long-term assets such as equipment, buildings, or infrastructure. One of the significant disadvantages of capex, particularly in the context of leveraged finance, is its reduced flexibility during economic downturns. When a company faces financial challenges, it may struggle to adjust its capital spending quickly, as these expenditures are often committed over a longer timeframe and involve contractual obligations.

In contrast, operational expenditures (opex) are usually more flexible. They cover the day-to-day costs of running a business, such as salaries, rent, and utilities, which can often be adjusted or scaled back more readily in response to changing circumstances. This flexibility is crucial for companies in leveraged finance, where managing cash flow is of utmost importance to meet debt obligations. If a company has committed to significant capital expenditures, it may find it difficult to reduce those costs quickly, hampering its ability to respond effectively to an economic downturn.

In summary, the characteristic of capital expenditures being less adaptable in tough economic times is the key reason why option B represents a notable disadvantage in the context of leveraged finance.