A Field Guide to LBO Debt

The debt side of a buyout is a menu, not a single product. Each instrument occupies a specific slot in the capital stack, carries its own pricing and covenant package, and shows up in specific situations. Here is a working field guide — organized roughly from most senior and cheapest to most junior and most expensive.

Pricing throughout is given as ranges and directional guidance, not point estimates. Actual terms move constantly with credit markets, the borrower's quality, sector, and leverage.

Senior secured: the foundation

Revolving credit facility (the revolver)

A revolver is a committed line the borrower can draw, repay, and redraw for working-capital and liquidity needs. It usually sits at the top of the stack, pari passu with the term loan on collateral.

• Pricing: Floating spread over SOFR, typically among the tightest in the structure, plus an undrawn commitment fee.
• Used for: Bridging seasonal working capital, funding bolt-ons, and general liquidity. Often drawn lightly at close.

Term Loan A vs Term Loan B

Both are senior secured term loans, but they serve different lender bases.

• Term Loan A (TLA): Held mainly by banks. Shorter maturity, meaningful mandatory amortization, tighter maintenance covenants, and lower pricing. Common in more conservative or relationship-bank-led deals.
• Term Loan B (TLB): Held by institutional investors (CLOs, credit funds). Longer maturity, minimal amortization (often 1% per year with a bullet at maturity), frequently "covenant-lite," and priced wider than a TLA to compensate.

TLB is the workhorse of large-cap sponsor finance.

The syndicated vs. private choice

A defining decision in modern LBO finance is who holds the paper.

Broadly syndicated loans (BSL)

The loan is arranged by investment banks and distributed to a wide group of institutional investors. Best for large, well-known credits.

• Pros: Deep liquidity, competitive pricing, large ticket sizes.
• Cons: Exposure to market conditions — a "market flex" can reprice or restructure the deal mid-syndication, and windows can slam shut in volatility.

Private credit / direct lending

One fund (or a small club) originates and holds the entire loan to maturity. This channel has grown enormously and now competes for deals well into the large-cap space.

• Pros: Speed, certainty of close, confidentiality, and a single relationship to negotiate with through the hold.
• Cons: Typically prices wider than syndicated debt for comparable risk — the borrower pays a premium for execution certainty and flexibility.

Unitranche

A hallmark of direct lending: a single blended facility that combines what would otherwise be senior and subordinated debt into one instrument with one blended rate. The lenders may privately split the risk via an "agreement among lenders" (AAL) into first-out and last-out pieces, invisible to the borrower.

• Used for: Middle-market and upper-middle-market deals that want one lender, one document, and fast execution.
• Pricing: Blended, landing between where standalone senior and mezzanine would price.

Going junior

Second lien debt

Secured by the same collateral as the first lien but subordinated to it in the payment and enforcement waterfall. Governed by an intercreditor agreement.

• Pricing: Materially wider than first lien — several hundred basis points more — reflecting thinner recovery.
• Used for: Adding leverage beyond what the first lien alone will support, without going all the way to mezzanine or equity.

High-yield bonds

Fixed-rate, longer-dated notes sold to bond investors, usually unsecured (or secured but junior). Common in larger deals.

• Pros: Long maturities, no maintenance covenants (incurrence-based instead), fixed coupon insulates from rate moves.
• Cons: Less flexible to prepay (call protection), requires scale and disclosure, and pricing is market-dependent.

Mezzanine debt

Subordinated debt bridging senior debt and equity, frequently with PIK interest and equity warrants. Covered in depth in its own guide — the short version: expensive, patient, and equity-flavored.

Specialty and situational instruments

Asset-based lending (ABL)

A revolver sized off a borrowing base — a formula on eligible receivables and inventory — rather than off cash-flow multiples.

• Pricing: Among the cheapest debt available, because it is tightly collateralized and monitored.
• Used for: Asset-heavy businesses (distribution, retail, manufacturing) where inventory and receivables are the natural collateral, and for companies whose cash flows are too volatile to support much cash-flow leverage.

Bridge loans

Short-term financing that "bridges" to a permanent structure — typically committed by banks to give a sponsor certainty of funds at signing, expected to be refinanced by a bond or term loan (or an equity/asset sale) shortly after close.

• Pricing: Structured with escalating fees and interest ("bridge to nowhere" pricing) precisely to discourage leaving it outstanding.
• Used for: Providing signing certainty when permanent financing cannot be fully placed before the deal must close.

Putting it together

A single buyout might stack a revolver and a Term Loan B for the senior layer, add a second lien for an extra turn of leverage, and top it with equity — or replace the entire senior-plus-second-lien section with one unitranche from a direct lender. An asset-heavy target might lead with an ABL. A large public-to-private might lean on high-yield bonds and a bridge.

The right structure is the one that matches the durability of the cash flows, the certainty the sponsor needs, and what the market will actually underwrite on the day the deal prices.