Leveraged Buyout · Private Equity Investing
Term Loans Vs Subordinated Notes
This question asks when a private equity sponsor would choose term loans instead of subordinated notes to fund a leveraged buyout.
Interview question
- Difficulty
- Medium
- Topic
- Leveraged Buyout
- Subtopic
- Private Equity Investing
What this question trains
This problem tests your understanding of LBO financing choices, especially the tradeoff between cheaper, more senior debt and more flexible but usually more expensive subordinated debt. In interviews, candidates are expected to think through cost of capital, repayment flexibility, and how covenant packages can affect a company’s ability to operate and execute future transactions. It also checks whether you can connect financing structure to the sponsor’s broader plan for the business, including potential acquisitions, divestitures, and debt paydown behavior.