LBO Debt Schedule

Step 1: Mandatory Amortization

Mandatory Amortization = Original Principal × Mandatory Amortization Rate

Mandatory Amortization = $400.0m × 5.0% (0.05) = $20.0m, fixed for all three years.

Mandatory amortization is set by the credit agreement and must be paid every year regardless of how much free cash flow the business generates — lenders treat it as a floor, not a target, which is why term loans are commonly described as carrying "hard" or "required" paydown.

Step 2: Interest Expense

Interest Expense = Beginning Debt Balance × Interest Rate

Using the Year 1 beginning balance: Interest = $400.0m × 8.0% (0.08) = $32.0m. Years 2 and 3 apply the same formula to each year's own beginning balance, shown in the full schedule below.

Interest expense is the fixed financing cost of the deal — it accrues on whatever debt is still outstanding at the start of the year, so it falls automatically as the balance is paid down, which is one reason leverage de-risks a deal over time even without any operational improvement.

Step 3: Cash Available for Optional Sweep

Cash Available for Sweep = CFADS − Interest Expense − Mandatory Amortization

Using Year 1: Cash Available for Sweep = $60.0m − $32.0m − $20.0m = $8.0m.

This is the discretionary cash left over once the two contractual debt service obligations — interest and mandatory amortization — are covered. With a 100% (1.00) sweep, all of it goes toward paying down principal ahead of schedule instead of accumulating as cash on the balance sheet.

Step 4: Ending Debt Balance and the Full 3-Year Schedule

Ending Debt Balance = Beginning Debt Balance − Mandatory Amortization − Optional Sweep

Using Year 1: Ending Debt Balance = $400.0m − $20.0m − $8.0m = $372.0m, which becomes the beginning balance for Year 2. Rolling the same three formulas forward for Years 2 and 3 produces the full schedule:

Because interest is calculated on each year's beginning balance rather than an average, the schedule can be solved sequentially, top to bottom, without any circularity — exactly the simplification a candidate should state upfront in an interview setting, before a full model would need an iterative or plug-based solution.

Final Results

• Year 1 Ending Debt: $372.00m
• Year 2 Ending Debt: $336.76m
• Year 3 Ending Debt: $293.70m
• Total Debt Paydown Over 3 Years: $106.30m (26.6% (0.266) of the original balance)

This ending-debt figure feeds directly into the equity value at exit: part of an LBO's equity return comes from paying down debt over the hold period, so a faster-amortizing schedule — more mandatory paydown, a bigger cash sweep, or stronger CFADS — directly increases the sponsor's realized MoM and IRR at a given exit multiple.

Would you like to explore how this schedule changes if the company adds a second, subordinated debt tranche that only starts amortizing after the senior term loan is fully repaid?