What is the typical amortization profile for senior secured debt in PE buyouts, and how do revolvers interact in cash flow planning?

• A. Senior term loans amortize gradually; revolvers provide liquidity; use revolver to cover shortages; covenants and debt service are accounted for term loan amortization
• B. Senior term loans amortize in lump-sum at maturity; revolvers are used for capital expenditures
• C. Revolvers amortize; term loans remain interest-only
• D. Both amortize identically with equal installments

Answer: (A)

In PE buyouts, you usually see senior secured debt structured with a gradual repayment of principal on the term loan over the life of the facility, rather than a single lump-sum payment at the end. This means you start chipping away at the principal each year (or per period) as cash flow allows, rather than waiting until maturity to repay everything. The revolver is a separate, flexible liquidity line kept available to cover timing gaps, not to fund normal debt service. It acts as a cushion for working capital swings, capex timing, or opportunistic needs, and is drawn only when cash flow isn’t enough to meet obligations or to smooth seasonal cash needs.

When you model cash flow, you project EBITDA against debt service on the term loan (both interest and the scheduled principal repayments). The revolver sits in the backdrop as a facility that can be drawn to ensure you maintain the required debt service coverage and liquidity. If cash flow dips, you draw on the revolver to avoid covenant breaches or missed payments; if cash flow improves, you repay revolver draws to restore available capacity. This combination provides a clear amortization path for the term debt while preserving liquidity to manage timing mismatches in cash flow.