Safe leverage / coverage ratio for LBOs during holding period?

As with most questions regarding debt and debt ratio, it depends on the company. A company with high degree of recurring revenue, sticky customers and/or long contracts will have the capability to lever up far more than a one-trick pony from Silicon Valley.

As a rule of thumb though, anything above 5xEBITDA is usually considered too much from the bank's perspective, which means you would have to find other (more expensive) sources of funding.

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I've seen 6-6.5x pretty commonly in larger cap / high quality deals. Max i've personally seen is 6.75x net; 7x gross. That was a ~2bn tev very high quality co where lenders have significant exp.

Strong FCF and cushy margins

I can’t see the dates for when these posts above me are from given I’m on mobile, but they are completely off. Anything above 5x levered considered “high” for an LBO? Please. Anyone that tells you that is living in 2010, or works exclusively on building products deals. I’ve worked on so many deals where leverage was 7x or higher, as high as 7.5x. And this is at a regulated bulge bracket bank, not a Jefferies or other unregulated lender.

The commentary on how to determine what is appropriate, however, is correct. 3x leverage could be pushing the envelope for a cyclical OEM auto parts manufacturer, but 6x for an acyclical business services name with high FCF conversion and recurring revenue model would be considered “light”.