easy · Investment Banking
When building an LBO model, why is a 'Cash Sweep' often used in the debt schedule?
- To ensure that all excess cash flow is used to prepay debt as quickly as possible, reducing interest expense and increasing exit equity
- To provide a fund for paying out special dividends to management during the hold period
- To automatically convert senior debt into mezzanine debt over time
- To keep the company's cash balance at zero at all times for tax efficiency
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