medium · Private Equity & LBOs

If the London Interbank Offered Rate (LIBOR) or Secured Overnight Financing Rate (SOFR) increases by 100 basis points, how does this impact a portfolio company's debt paydown schedule if its debt is 100% floating rate?

1. It increases the cash available for paydown by increasing the tax shield benefit.
2. It increases the paydown because lenders require faster amortization in high-rate environments.
3. It decreases the cash available for paydown because higher interest expense reduces pre-tax cash flow.
4. It has no impact because the company likely has interest rate caps or swaps in place.

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