Question of the day
2026-08-07
Leveraged Finance
Walk me through a typical leveraged buyout debt capital structure from top to bottom.
Answer it out loud first — like you would in the room. Then check yourself:
Reveal the model answer
Model answer
From most senior/secured to most junior
- Revolver — senior secured, undrawn liquidity backstop
- Term Loan A — senior secured, amortizing, bank-held
- Term Loan B — senior secured, minimal amortization (~1%/yr), institutional/CLO-held
- Second lien — secured but behind the first lien on collateral
- Senior unsecured notes (high-yield bonds)
- Subordinated / mezzanine debt (often with PIK and/or warrants)
- Preferred equity
- Common equity (the sponsor). Higher in the stack = more secured/senior = lower cost; lower = riskier = higher cost. Pricing rises as you move down.
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