Leveraged Finance

Leveraged finance is the debt that funds private equity acquisitions, dividends, and corporate capital structures - sitting where M&A meets capital markets. The typical deal is an LBO: a sponsor contributes 20-40% equity and borrows the rest, running 4-6x net leverage at entry and deleveraging to 2-3x at exit, on entry multiples of 8-12x EBITDA. The debt stack is layered by seniority. A revolving credit facility sits at the top for liquidity. Term Loan A is 5-7 years, amortising, priced at SOFR plus 300-400 bps, held by banks. Term Loan B runs 7-8 years with minimal amortisation at SOFR plus 400-550 bps, syndicated mainly to CLOs and hedge funds. Second lien sits junior at SOFR plus 700-1000 bps, with mezzanine and PIK holdco notes at the bottom. LevFin teams arrange this stack, negotiate covenants - tight maintenance ratios on TLAs, looser incurrence tests on TLBs - and run syndication. Equity returns, targeted at 20-25% IRR, flow from a waterfall of EBITDA growth, debt paydown, and exit multiple expansion. Credit discipline runs throughout. Leverage and coverage covenants protect lenders; CLOs absorb roughly half the TLB market; direct lenders like Ares, HPS, and Owl Rock now originate 30-40% of financings. Arrangers such as JPM, Goldman, and Barclays earn arrangement fees around 1-1.5% and underwriting fees of 0.5-1%, with OID on syndicated loans as de facto upfront payment. A posting mentioning these names, instruments, or markets is hiring into this world.

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