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?
- The OID is a 'Source' because it effectively reduces the interest the company must pay lenders.
- The OID increases the negotiated 'Equity Purchase Price' that is paid to the selling shareholders.
- The OID is a 'Use' of cash because the company receives only 98% of the loan's face value but owes 100%.
- 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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