LBO Model Question - Debt Schedule Cash Sweep
In an LBO, we typically assume a 100% cash sweep to reduce future interest expense. Why is this not dividend out to shareholders yearly instead? Cost of equity > cost of debt - so logically we should dividend this out?
Credit agreements won’t let sponsors dividend out at will.
Ah yes, of course - the credit agreements
Dividends are also inherently tax inefficient. They get taxed at the corporate level and again at the taxpayer level.
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