How long do LBO debt tranches typically run before they must be refinanced — and why?
LBO debt has maturities that are considerably longer than the sponsor's typical hold period. Middle-market standard:
| Tranche | Maturity |
|---|---|
| RCF | 5 years |
| TLA | 5–6 years |
| TLB | 7 years |
| Mezzanine | 7–9 years |
| Holdco PIK | 8–10 years |
At exit (typically Year 5–7) the buyer refinances the debt with its own capital structure — the sponsor repays all tranches at the closing of the sale transaction.
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Maturity should be 1–2 years longer than the planned hold period, to keep optionality for a hold extension.
If the sponsor holds longer than planned (e.g. Year 6 instead of 5), the TLB maturity draws near. Refinancing risk becomes pricing-relevant — in a difficult market banks can demand higher spread premiums.
- Inside maturities: if senior debt matures before the Mezzanine, the Mezzanine must be refinanced or restructured, otherwise cross-default.
- Refi market conditions are uncertain: cheap in a boom, high spread premiums in a crisis.
Question: "How do you structure maturities?"
Answer: "Senior 7-year bullet, Mezzanine 8–9 years — the Mezzanine always longer than the senior, otherwise inside-maturity risk. With a 5–7 year hold that gives enough refi optionality without market conditions at the exit date holding the sale to ransom"