Course · Act I: The Buyout · Chapter 2
Sources and uses of funds
How a buyout is paid for: the sources and uses table, term loans, senior notes and sponsor equity, the leverage multiple, and who gets repaid first when it fails.
Key terms
- Private equity
- Funds that buy whole companies, usually with a lot of debt, and sell them a few years later.
- Sources and uses
- The deal’s two-column table: where the money comes from and where it goes. The totals must match.
- Term loan
- A bank loan repaid on a set schedule, usually secured on the company’s assets.
- Senior notes
- Bonds sold to investors. Senior to junior debt and equity; here unsecured, so behind the term loan for the assets.
- Sponsor equity
- The buyout fund’s own money in the deal. Paid last, keeps the upside.
- Transaction fees
- Bankers’, lawyers’ and accountants’ bills for doing the deal. A use of cash on day one.
- Leverage multiple
- Debt ÷ EBITDA. How many years of EBITDA the company owes.
“Sources and Uses” is part of the full course: 7 puzzles on sources and uses of funds. Biscuit Barrel is fictional; the frauds in the notes are real, settled cases. Try this act’s free chapter, “What Does It Cost?”, first.
“Sources and Uses” is in Act I: The Buyout. 7 puzzles, unlimited retries.
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