medium · Private Equity advanced-lbo
A company has $200M of Term Loan A debt and $200M of Term Loan B debt. The TLA requires 10% annual amortization ($20M). The company's CFADS is $15M.
How is the shortfall in the mandatory TLA payment handled in a typical LBO model?
- The TLA lender agrees to capitalize the $5M shortfall into the principal balance as a PIK adjustment.
- The $5M shortfall is deducted from the 'Minimum Cash' cushion to satisfy the bank.
- The $5M shortfall is instead subtracted from the TLB's scheduled 1% mandatory amortization.
- The company draws 5M from its Revolving Credit Facility to satisfy the mandatory TLA payment.
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