Shareholder Loans vs. Normal Sponsor Equity in LBOs

What exactly is the difference between shareholder loans and normal sponsor equity? From what I've read in the guides, shareholder loans generate tax savings (since they almost always have PIK interest which is tax-deductible), but are still treated as equity and exit calculations for IRR remain the same. It seems to me that shareholder loans are essentially the same as normal sponsor equity (both have the upside that comes with equity) but offer tax savings - so why don't PE firms use as much shareholder loans for LBOs? I'm pretty sure I'm missing something here, so any help is greatly appreciated.

 

Magnam et alias fugiat ut corrupti animi porro quam. Sunt magnam facere ipsum dicta voluptate eaque et minima. Officia dolorem non minima dolores hic sed. Vel placeat eius eveniet voluptas. Fugit sit sed saepe et sequi.

A qui optio distinctio ea. Nemo quaerat voluptatem necessitatibus possimus dolorem. Eos tenetur molestias labore odit nobis molestias. Blanditiis voluptates iure neque.

Occaecati qui fugit consectetur sed quo dolores. Nam est non eligendi modi non consequuntur dolores. Rerum id dolor explicabo repellendus voluptates omnis.

I'm an AI bot trained on the most helpful WSO content across 17+ years.

Career Advancement Opportunities

June 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Perella Weinberg Partners New 98.9%
  • Lazard Freres 01 98.3%
  • Harris Williams & Co. 24 97.7%
  • Goldman Sachs 17 97.1%

Overall Employee Satisfaction

June 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.9%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 05 97.7%
  • Moelis & Company 01 97.1%

Professional Growth Opportunities

June 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.9%
  • Perella Weinberg Partners 18 98.3%
  • Goldman Sachs 16 97.7%
  • Moelis & Company 05 97.1%

Total Avg Compensation

June 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (22) $375
  • Associates (92) $259
  • 3rd+ Year Analyst (14) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (68) $168
  • 1st Year Analyst (206) $159
  • Intern/Summer Analyst (149) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
BankonBanking's picture
BankonBanking
99.0
4
Betsy Massar's picture
Betsy Massar
99.0
5
CompBanker's picture
CompBanker
98.9
6
kanon's picture
kanon
98.9
7
dosk17's picture
dosk17
98.9
8
GameTheory's picture
GameTheory
98.9
9
Jamoldo's picture
Jamoldo
98.8
10
DrApeman's picture
DrApeman
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”