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Rank the layers of a typical LBO capital stack from most senior to most junior.
Answer
(1) Revolver (revolving credit facility) — typically senior secured, undrawn or drawn on demand. (2) Term Loan A — senior secured, banks, amortizing. (3) Term Loan B — senior secured, institutional/CLO buyers, minimal amortization (bullet), floating rate. (4) Senior Secured Notes / Bonds. (5) Senior Unsecured Notes. (6) Subordinated Notes / Mezzanine. (7) Preferred Equity. (8) Common Equity.
Why interviewers ask this
The capital stack determines payout priority in bankruptcy and informs pricing (more senior = lower yield). Term Loan B is the workhorse of modern LBOs — institutional buyers (CLOs, credit funds) absorb most of the syndicated loan market. Know the difference between TLA and TLB cold for any sponsor or LevFin interview.
capital stackdebt types