medium · Private Equity advanced-lbo

If a Term Loan B (TLB) is issued with an 'Original Issue Discount' (OID) of 2%, how does this affect the Sources and Uses table at closing?

  1. The OID is a 'Source' because it effectively reduces the interest the company must pay lenders.
  2. The OID increases the negotiated 'Equity Purchase Price' that is paid to the selling shareholders.
  3. The OID is a 'Use' of cash because the company receives only 98% of the loan's face value but owes 100%.
  4. The OID is ignored in the Sources and Uses table entirely and only ever appears on the company's Income Statement.

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