medium · Private Equity & LBOs

A TLB has 1.00% annual mandatory amortization. If the company outperforms and sweeps $100.0M in Year 1, how does this affect the mandatory amortization payment required in Year 2?

1. The mandatory amortization is waived until the $100.0M 'credit' is used up.
2. The Year 2 mandatory payment remains 1.00% of the original principal.
3. The Year 2 payment is reduced by 1.00% of the swept amount.
4. The Year 2 payment increases because the debt is now less risky.

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