The LBO financing plan (plan de financement LBO) is the capital structure put in place by the acquiring PE fund to finance the acquisition of a target company, combining debt and equity in proportions optimized to maximize the return on invested equity capital. It details the full debt stack (each tranche's amount, pricing, maturity and covenants) and the equity contribution from the PE sponsor, alongside any management co-investment. The financing plan is the central document of a leveraged acquisition and drives all downstream financial modelling.

A standard LBO financing plan includes: (1) Senior debt — Term Loan A (amortising) + Term Loan B (bullet), typically 3–4.5x EBITDA; (2) Junior debt — mezzanine or second lien, adding 0.5–1.5x EBITDA; (3) PE sponsor equity, representing 30–50% of enterprise value; (4) Management package — a small equity co-investment by managers with asymmetric upside, aligned through sweet equity or ratchet mechanisms. The total leverage (Debt/EBITDA) at entry typically ranges from 4–6x depending on market conditions, sector, and lender appetite.

The financing plan is constrained by lender covenants: the leverage ratio (max Debt/EBITDA) and the DSCR (minimum debt service coverage) are the two most critical. The LBO model tests the covenant compliance year by year under base, upside and downside scenarios — a covenant breach in year 3 of a 7-year hold is a critical scenario that must be identified and hedged through the debt structure (covenant headroom, cure rights, accordion provisions).

At Hectelion, we build and optimise LBO financing plans in our financial structuring mandates and advise on French and Swiss debt market conditions for mid-market transactions.