Why is equity usually modeled as the 'plug' in the S&U table?
Debt capacity is the external constraint — it is limited by the target's cash-flow generation and current market conditions. Senior Debt, for instance, is typically sized as a multiple of EBITDA (today 4–6x depending on sector). Once the maximum debt volume is set, the equity contribution follows automatically:
```
`Sponsor Equity = Total Uses − existing cash − Total Debt − Rollover Equity`
```
Deep diveShow more details
The model stays consistent — both sides always balance. The sponsor immediately sees the minimum equity check and can test whether the deal meets its return hurdles (typically 20–25% IRR over 5 years).
In modeling tests you are often asked 'If the sponsor wants to put in less equity, what changes?' — the clean answer: only if more debt is available (a higher leverage multiple or an extra tranche), otherwise nothing. Equity is the output, not the input.