medium · Private Equity & LBOs

In the calculation of Net Debt for an LBO exit, why is 'Restricted Cash' usually excluded from the cash subtraction?

1. Because it is not 'free' cash available to repay debt or distribute to shareholders at the sponsor's discretion.
2. Because GAAP rules require restricted cash to be treated as a long-term intangible asset.
3. Because restricted cash is already netted against accounts payable on the balance sheet.
4. Because restricted cash carries a higher interest rate than the Revolver.

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