In the context of an LBO, what typically does the 'sources' section include?

In the context of a leveraged buyout (LBO), the 'sources' section provides a comprehensive overview of the various capital structure components being utilized to finance the acquisition. This typically includes a mix of debt instruments (such as bank loans, high-yield bonds, mezzanine financing) and equity contributions from the buyers or sponsors. Highlighting the diversity of capital sources demonstrates a detailed understanding of how the transaction will be funded and shows the balance of leverage and equity that supports the LBO structure.

In addition, the inclusion of multiple financing sources reflects the complexity of LBO transactions, where different layers of capital have distinct rights, repayment terms, and risk profiles. This section is crucial for assessing the overall financial strategy and capital structure of the deal, thereby influencing investors’ and lenders’ perceptions.

Focusing exclusively on just one type of funding, such as bank loans or equity financing only, would not capture the full scope of how the transaction is structured. A comprehensive understanding of the 'sources' section is essential for evaluating the feasibility and risk associated with the LBO.