medium · Investment Banking

What is the 'Revolver' in an LBO model, and why is it referred to as the 'Plug'?

1. It is a line of credit that balances the cash flows, drawing if cash is negative and repaying if cash is positive.
2. It is a special cash dividend paid to the management team once EBITDA growth targets are hit each year.
3. It is a mandatory term loan amortization repayment scheduled to occur at the end of every single fiscal year of the deal.
4. It is simply the sponsor's equity check, sized to whatever amount is needed to make the Sources and Uses table balance exactly.

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