hard · Private Equity & LBOs
A sponsor models an LBO with $400M of debt consisting of a $300M Senior Term Loan (SOFR + 400 bps) and $100M of Mezzanine debt (12% PIK). In Year 1, EBITDA is $80M.
If SOFR is 5%, what is the impact of the Mezzanine interest on the Year 1 Cash Flow Statement?
- A $9M impact on cash after considering the 25% corporate tax shield.
- A $12M cash outflow in Cash Flow from Operations.
- Zero impact on Cash Flow from Operations, but a $12M increase in Financing Liabilities on the Balance Sheet.
- A $12M cash inflow in Cash Flow from Financing.
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