Series 79 practice questionmediumLeveraged Buyouts
Which company characteristic most enhances debt capacity in an LBO structure?
- ALow fixed asset base
- BHigh capital expenditure requirements
- CStable and predictable cash flows✓ Correct answer
- DLarge contingent liabilities
Explanation
Why C — Stable and predictable cash flows
Lenders favor targets with stable cash flows, as this supports higher debt loads. The trap is to assume asset-heavy businesses are always better for LBOs, when predictability of cash flow is key.
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