Project Overview
A Sources & Uses waterfall is the foundation of every leveraged buyout model. This workbook constructs the complete capitalization table for an LBO transaction: debt tranches by seniority, sponsor equity commitment, acquisition premium, advisory fees, and OID. The model verifies that sources equal uses to the penny, computes key leverage ratios (Debt/EBITDA, Equity/TEV), and sets up the pro-forma balance sheet for year-one debt scheduling.
📋Problem Statement
Structure a leveraged acquisition by determining the optimal mix of debt and equity that maximizes sponsor returns while keeping leverage within lender covenant thresholds — a core task in any PE deal process.
🎯Analytical Approach
Built a Sources & Uses schedule from the ground up: defined the target enterprise value, modeled three debt tranches with their respective coupon rates and sizing constraints, calculated deal fees as a percentage of TEV, and sized sponsor equity as the residual funding need.
💾Data Sources
Target company EBITDA, purchase multiple, prevailing credit spreads for each debt tranche, advisory and financing fee schedules, and OID assumptions drawn from leveraged loan market conventions.
🔧Quantitative Methods
Circular-reference-free debt sizing using EBITDA-based leverage constraints (e.g., max 4.5× senior, 5.5× total). Sources = Uses verification formula. Pro-forma LTV and interest coverage ratios. Sensitivity table showing sponsor equity % vs. purchase multiple.
✨Key Results
Fully balanced capitalization table with total sources equaling total uses. Model outputs include closing leverage ratios, equity contribution as a percentage of total enterprise value, and annual interest expense for Year 1 — ready to feed directly into a full LBO waterfall model.
🧠Key Learnings
Precision in deal structuring matters: a one-turn increase in leverage meaningfully shifts sponsor IRR but raises credit risk. Understanding fee conventions, OID mechanics, and tranche seniority is essential for anyone working in leveraged finance or private equity.