Module IV· Sources & UsesIntermediate
Question
Continuing Industrial Manufacturing Co: the sponsor wants 5x Senior Debt, no mezzanine, and to use the $15m of existing cash. What does the Sources side look like?
Answer
Worked example (continued)
Total Uses from the prior step = $354m. EBITDA $40m. Sponsor structuring: 5x Senior Debt, no mezzanine, existing cash fully used.
Deep diveShow more details
Mechanics
| Sources item | $m | Calculation |
|---|---|---|
| Existing cash | 15 | From the target balance sheet |
| Senior Debt (TLB) | 200 | 5.0x EBITDA of $40m |
| Sponsor Equity | 139 | Plug = 354 − 15 − 200 |
| Total Sources | 354 |
Consequence
Equity check for the sponsor: $139m (39% of Total Uses). Debt/EBITDA ratio 5.0x — at the top of the middle-market range, but still financeable with stable cash flow.
Pitch tip
Sanity check: both sides = $354m ✓.
Question: "What happens at 6x debt?"
Answer: "The equity check falls to $99m (28%), but lenders then usually demand a mezzanine tranche or decline — cash-flow coverage gets too tight"