Why are cyclical businesses generally riskier LBO candidates, and when can a sponsor still pursue one?

Cyclical businesses (commodities, autos, homebuilders) have cash flows that swing with the economic cycle. Because LBO debt requires fixed payments through the cycle, a downturn at the trough can cause a covenant breach or default. Lenders therefore extend less leverage on tougher terms. A sponsor can still do a cyclical LBO if: it uses conservative (lower) leverage to provide a cushion; it buys near the bottom of the cycle at a depressed multiple expecting multiple expansion on recovery; it has a credible operational plan; or the debt structure is flexible (covenant-lite, longer maturities, PIK options). The key is sizing leverage to survive the trough.