Who lends PE debt?

Sorry if this sounds stupid, but where do PE firms get debt financing for their LBOs? I'm very familiar with the LBO process but surely banks are not willing to lend at the amount of leverage demanded by financial sponsors? Is this where private credit comes in? I understand the equity portion comes from the LP but who is willing to commit the debt in the shell company?

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Comments (5)

Oct 13, 2020 - 2:44pm

Senior debt from for example banks (RCF's, TLA/TLB's) and junior debt from private credit funds or mezzanine financing arms of banks.

I noticed the other user linking the leveraged loan primer - indeed a very interesting one.

If you want to extend your knowledge, and get to know a debt product that is structured on the fund level (rather than Holdco/Opco level), research Capital Calls or Fund Financing facilities. Highly interesting in my opinion, especially if you want to get to get to know all the details of private equity and it's relation to debt financing.

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