Debt Amortization & Equity Value Creation Waterfall
Year-by-year debt reduction via Free Cash Flow sweep vs cumulative Sponsor Equity value
IRR Sensitivity Matrix: Exit Multiple vs Hold Horizon
Stress test returns across exit valuation multiples and investment hold periods
Exit Multiple
3 Years
4 Years
5 Years
6 Years
7 Years
MODEL EXPORT READY:accelerant_lbo_model.json
Trace assumed funding, senior paydown and endpoint equity
Read the explanation
This local LBO page is a simplified source-authored valuation toy, not investment guidance or verification of an actual acquisition. Every currency input is in millions. At four thousand enterprise value, forty-five percent senior debt is eighteen hundred and fifteen percent subordinated debt is six hundred. Total debt is twenty-four hundred and the equity check is sixteen hundred. Entry enterprise value divided by two hundred EBITDA gives twenty times. The bars compare those funding components on point two pixels per million scale; their sum accounts for the entry value. Debt percentages enter as financing assumptions, not an independently assessed ability to borrow or repay. The source omits a separate tax, fee, capital-expenditure and working-capital calculation and instead uses a fixed seventy-five percent EBITDA-to-cash factor. Those assumptions must remain distinct from actual transaction facts or validated business forecasts. The source grows EBITDA before computing each year cash. In year one, two hundred at fifteen percent growth becomes two hundred thirty. Seventy-five percent is one hundred seventy-two point five. Interest uses opening debts: eighteen hundred at six point five percent is one hundred seventeen, and six hundred at nine percent is fifty-four, totaling one hundred seventy-one. Only one point five remains for paydown. Senior debt receives cash first, falling to seventeen hundred ninety-eight point five while subordinated debt stays six hundred. By year five the same recurrence gives EBITDA about four hundred two point two seven, senior debt about fourteen hundred seventy-two point two one and subordinated debt still six hundred. If cash before interest falls short, the source clamps available paydown to zero; it does not add unpaid interest to debt or model a default. The bar shows five-year senior amortization on a common half-pixel-per-million scale and explicitly preserves the cash-shortfall limitation. The selected hold year chooses an exit from the seven-year schedules. At year five, four hundred two point two seven EBITDA times twenty gives about eight thousand forty-five point four three enterprise value. Subtracting about twenty hundred seventy-two point two one debt leaves fifty-nine hundred seventy-three point two two equity. Divide by the initial sixteen hundred equity to get about three point seven three times money. The source annualizes that ratio with the fifth root, producing about thirty point one percent. This is endpoint arithmetic, not a validated investment return forecast; interim distributions are not separately modeled. If exit equity is zero, the implementation returns zero IRR by a guard rather than the mathematical loss convention, so its zero output must be read as a code limitation. Actual JSON and CSV downloads preserve schedules and inputs. Offline Chart.js is unavailable, so numerical metrics update but the original amortization canvas and later sensitivity matrix fail to render. Local verification separates those original dependency limits from preserved controls, placement and actual video playback.
How do debt leverage, free cash flow amortization, and exit valuation multiples drive sponsor IRR and MOIC?
This interactive workbench models a leveraged buyout (LBO) structure, tracking how senior and subordinated debt amortize over time to build sponsor equity value. In an LBO, initial enterprise value is split between debt obligations and sponsor equity. Each period, operating cash flow covers interest expenses, and surplus cash amortizes senior debt first before subordinated debt. At exit, net enterprise value minus remaining debt determines sponsor equity proceeds, which translate into a Multiple on Invested Capital (MOIC) and Internal Rate of Return (IRR).
The model applies a fixed heuristic 75% EBITDA-to-FCF conversion factor rather than modeling working capital adjustments, taxes, or capital expenditures. It also assumes continuous uninterrupted revenue growth, fixed interest spreads without refinancing fees or prepayment penalties, and instantaneous exit liquidity at the chosen multiple.
Try a worked example
Under the baseline configuration ($4,000M Enterprise Value, $200M EBITDA, 60% initial leverage, 15% CAGR, 20.0x exit multiple, and 5-year hold), the model projects a $1,600M initial equity check and a 22.4% IRR (2.75x MOIC). If you decrease the Hold Period slider from 5 Years to 3 Years, exit EBITDA drops from approximately $402M to $304M, shortening debt amortization time and adjusting the active cell in the sensitivity table to reflect a 3-year investment horizon.
Capital Structure & Initial Leverage
At closing, enterprise value is funded via senior debt, subordinated debt, and private equity sponsor equity. Senior debt generally carries lower interest rates due to first-lien security, while subordinated mezzanine debt carries a higher rate. Higher initial debt decreases the sponsor equity check, which increases potential return multiples if cash flow comfortably covers debt service, but elevates default risk if earnings contract.
Free Cash Flow Sweep Waterfall
In this simulation's annual loop, free cash flow before interest is approximated as 75% of EBITDA. Annual interest obligations across senior and subordinated debt tranches are deducted first. The remaining net cash is directed toward paying down senior debt principal. Once senior debt reaches zero, additional cash amortizes subordinated debt principal, expanding the residual equity cushion year by year.
Exit Valuation and Return Metrics (IRR & MOIC)
At the chosen holding period, Exit Enterprise Value is calculated as Exit EBITDA multiplied by the Exit Multiple. Deducting the remaining balance of senior and subordinated debt produces Exit Equity. MOIC equals Exit Equity divided by the initial sponsor equity check, and IRR represents the annualized compound rate of return: IRR = (MOIC ^ (1 / hold_years)) - 1.