An investment banker is evaluating a leveraged buyout target's credit profile. The company has EBITDA of $200 million, total debt of $900 million, annual interest expense of $54 million, and capital expenditures of $40 million. What is the company's total leverage ratio and interest coverage ratio, and how would these metrics likely be viewed by leveraged finance lenders?

Why A — 4.5x leverage, 3.7x coverage; comfortably within typical LBO lending parameters

Total leverage ratio = Total Debt / EBITDA = $900M / $200M = 4.5x. Interest coverage ratio = EBITDA / Interest Expense = $200M / $54M = 3.7x. A leverage ratio of 4.5x and interest coverage of 3.7x are within typical parameters for leveraged buyout financing, where total leverage ratios commonly range from 4.0x to 6.0x or higher depending on the industry and market conditions. Lenders would evaluate these metrics alongside free cash flow generation, asset coverage, and industry-specific benchmarks to determine the appropriate debt capacity.