LBO Sources and Uses Table: Line-by-Line Breakdown for Analysts

A sources and uses table is the transaction balance sheet for a leveraged buyout. Uses show the cash required at closing, while sources show where the money comes from and in what form. It is not the pro forma balance sheet or the purchase price allocation, but it drives both and anchors the closing-day funds flow.

In practical terms, this table is your single source of truth for the deal’s cash movement and non-cash instruments that substitute for cash at close. If you build it rigorously, execution tightens and post-close reconciliations go smoothly. If you do not, funds-flow breaks, covenant issues, and optics problems appear when it is hardest to fix them.

Context and objectives: lock definitions to avoid breaks

You build the table at signing and lock it at closing. Every line must tie to the purchase agreement definitions of cash, indebtedness, transaction expenses, and working capital adjustments. When those definitions and the table diverge, funds-flow breaks follow. The timing risk is acute on closing day and the optics are poor with sellers and lenders if numbers do not reconcile to the signed documents.

Key mechanics and funds flow: how the wires actually move

On closing day, BidCo or Merger Sub receives equity and debt proceeds and wires out consideration to sellers, repays target debt, funds escrows, pays fees, and leaves agreed cash on the balance sheet. Agents send debt proceeds straight to old lenders against payoff letters that deliver lien releases. Equity goes to the seller representative or exchange agent net of holdbacks or escrow.

Cash control should already be set. Senior secured debt takes first-priority liens on substantially all assets of the operating group, with guarantees from material subsidiaries. Revolvers often fund into a controlled disbursement account. HoldCo or PIK instruments sit outside the restricted group and are structurally subordinated. The table must show which entity raises each dollar and which entity pays each dollar. Cross-border closings add multi-currency flows and local perfection steps, so plan them pre-close to avoid lien gaps.

Entity setup and jurisdiction: structure drives sources and security

A US deal typically uses a Delaware HoldCo above a Delaware BidCo or Merger Sub. In the UK, BidCo often sits under English law with a downstream Merger Sub for squeeze-out in take-privates. Debt may sit at an intermediate HoldCo or at OpCo depending on tax, guarantee capacity, and regulation. Credit agreements often use New York law; security follows local law. Always check exchange controls, financial assistance limits, and stamp duties, which are jurisdiction-specific.

Uses of funds: include only closing cash flows and true substitutes

Your uses section should capture all cash paid at close and any non-cash items that substitute for cash at close. Be specific and tie each line to a document, invoice, or contractual definition.

Equity purchase price: Show consideration paid to equity holders based on enterprise value adjusted for cash, indebtedness, and working capital, or equity value plus assumed or payoff debt. If locked-box, add leakage interest if owed.
Repayment of indebtedness: Pay down revolvers, term loans, notes, capital leases, accrued interest, breakage or make-whole, unpaid commitment fees, and hedge break costs if hedges terminate. Obtain payoff letters with lien releases. If debt stays outstanding, exclude it from uses and keep it in the pro forma balance sheet.
Transaction expenses: Include Company-responsible sell-side and buy-side fees per the agreement, such as financial advisors, legal, accounting, consulting, printers, data room, representations and warranties insurance premiums if Company-borne, change-in-control and retention bonuses payable at close, and any deferred IPO costs written off. Reconcile to the agreement’s Company Transaction Expenses definition.
Equity awards settlement: Cash out options, RSUs, and performance awards that accelerate at change in control. Include gross payouts and employer payroll taxes and withholding. Identify rollovers to avoid double counting.
Escrows and holdbacks: Indemnity escrows, purchase price escrows, and special escrows reduce cash to sellers and are a use at close. If RWI is used with a small escrow, include it and its term. Earnouts are not a closing use unless pre-funded.
Taxes and transfers: Include transfer taxes, stamp duties, filing fees, and required withholding for non-resident sellers. For example, UK share purchases generally incur 0.5 percent stamp duty. HSR filing fees are payable at filing and must be in the cash plan.
Cash to balance sheet: Fund minimum liquidity to satisfy covenants or operating needs. If the revolver should be undrawn on day one, do not count undrawn capacity as a source. If drawn for letters of credit or transit checks, include the draw and the matching use.
OID and upfront fees: Choose one view and stay consistent. Either show net debt proceeds with no separate use, or show gross debt as a source and original issue discount or fees as a use. For GAAP, discounts and issuance costs net against debt and amortize to interest expense.
Other adjustments: Completion accounts require working capital adjustments to the peg. Locked-box may require leakage interest. Include repayment of seller advances and intercompany settlements. For cross-border deals, include FX hedge settlement if funding currency differs from purchase price.

Sources of funds: fill the bucket with controlled flexibility

Sources must cover every dollar of uses and should reflect realistic proceeds after fees and flex. Build headroom where market conditions or flex could reduce cash.

Senior secured term loan: Show gross or net of OID and fees per your convention. Term Loan B funds most cash uses in syndicated deals, and unitranche behaves similarly from a funds-flow perspective. Confirm use-of-proceeds language covers every use line.
Revolving credit facility: Only drawn revolver is a source. Letters of credit consume capacity but do not provide cash. Many sponsors avoid funding closing uses with the revolver to preserve flexibility on day one.
Second-lien or junior secured: If present, show proceeds net of OID or fees and confirm intercreditor terms fit the security and intended uses.
Subordinated or mezzanine: HoldCo PIK instruments fund at HoldCo and downstream as equity. Reflect structural subordination and do not assume cash can pass restricted payment tests. For background, see Mezzanine Financing: What It Is and How It Works.
Seller notes: If sellers accept a note in lieu of cash, it is a non-cash source that reduces cash uses. Confirm PIK features, subordination, and entity location.
Preferred equity: Clarify whether cash-pay or cumulative non-cash. Redemption features affect solvency and covenant tests.
Sponsor common equity: This is the plug after all other sources. Split between lead, co-invest, and any management rollover stapled into the structure. Show gross sponsor equity and any planned syndication.
Rollover equity: Shareholders who exchange target shares for BidCo shares reduce cash needs. Show separately from new money. Confirm applicable securities law exemptions and approvals.
Target cash: If permitted by the agreement and unrestricted, target cash can fund the purchase price. Exclude restricted cash, collateral accounts, and trapped cash that cannot be repatriated efficiently.

Documentation map and execution order: pin the paper to the wires

Execution sequencing matters. Align paper, proceeds, and payoff mechanics before closing week.

Purchase agreement: Defines consideration, debt-like items, expenses, escrows, earnouts, and mechanics. Add a funds-flow exhibit when possible.
Equity commitment and subscription: Sponsors commit to fund and subscribe for equity in BidCo or HoldCo. Finalize governance in shareholder or limited partnership agreements.
Debt commitments: Commitment and fee letters set economics and flex. Credit and security documents implement the capital structure. The agent circulates the checklist and funds-flow.
Payoff letters and releases: Each lender delivers payoff letters with wire instructions and lien release commitments. File UCC terminations and mortgage releases post-closing.
Officer and solvency certificates: The CFO signs solvency. Auditors may provide bring-down comfort in public debt deals; private deals rely on management certifications.
Regulatory filings: HSR, foreign merger control, sector approvals, and CFIUS as applicable. As of March 2024, the HSR size-of-transaction threshold is $119.5 million.

Economics and fee stack: illustrate the proceeds

One-time fees include advisory fees, lender upfront fees, OID, ratings, and RWI premiums. Recurring costs include interest, undrawn commitment fees, letter-of-credit fees, and admin agent fees. Prepayment premiums and call protection affect forward cash but not closing uses. As a quick illustration, a 1,000 face term loan with 2 percent OID and 1 percent upfront yields 970 cash if netted. Either show 970 as a source, or 1,000 as a source with 30 as a use. For accounting, the 30 nets against debt and amortizes to interest expense. Modeling these flows cleanly is easier if you structure your debt schedule with separate columns for gross, OID, fees, and net proceeds.

Accounting and reporting linkages: from cash to goodwill

The table drives the opening balance sheet under ASC 805 or IFRS 3. Measure identifiable assets and liabilities at fair value. The equity purchase price plus assumed or refinanced liabilities less identifiable net assets yields goodwill. Deferred taxes arise from basis step-ups and intangibles. Debt issuance costs and discounts net against debt and amortize using the effective interest method. Costs directly attributable to equity issuance reduce equity. Representations and warranties insurance premiums are typically expensed, subject to auditor confirmation. For a primer on mapping purchase accounting to valuation, see Understanding Goodwill and Purchase Price Allocation in M&A. If a US registrant is involved, present pro forma financials under SEC Regulation S-X Article 11. Lenders expect a pro forma that reconciles to sources and uses and shows purchase accounting entries, new debt net of issuance costs, extinguishment entries, and elimination of historical equity. Building that reconciliation is faster if your three-statement model captures both cash view and GAAP view of financing flows.

Tax considerations: model deductibility and fees early

Section 163(j) limits business interest deductions to 30 percent of adjusted taxable income, with carryforwards and exceptions. Highly levered deals need sensitivity analysis, including the effect of bonus depreciation phase-down and post-2021 ATI rules. Transaction cost treatment follows Treas. Reg. 1.263(a)-5. Investigatory costs may be deductible, while facilitative costs must be capitalized. Rev. Proc. 2011-29 allows a 70 or 30 safe harbor on success-based fees without a detailed study. Track costs early by category so tax can apply the right treatment at close. Rollover equity often seeks deferral under Section 351 or 721; meet control and continuity requirements to avoid immediate gain. For foreign sellers, assess withholding and FIRPTA where relevant. Stamp duties, VAT on fees, and merger control fees matter outside the US.

Regulatory and compliance: gate the close, not the cash

Antitrust and merger control: Pre-closing filings are mandatory in many jurisdictions. Do not close until clearances or waiting periods are resolved.
CFIUS and foreign investment: File where foreign investors or sensitive sectors are involved. Mitigation can affect timing and structure.
KYC and sanctions: Banks and escrow agents require KYC and sanctions screening. Source-of-funds representations are common.
Beneficial ownership: New US entities generally must report beneficial owners to FinCEN starting 2024, subject to exemptions.
Securities law: 144A and private placements require proper exemptions. Equity syndications must meet investor qualification standards.

Risks and edge cases: avoid double counts and traps

Definition gaps: Align indebtedness, cash, and transaction expenses between the purchase and credit agreements to avoid omissions or double counts.
Locked-box vs. completion accounts: Reflect leakage interest or closing-date true-ups as applicable.
FX: If price is in a foreign currency and funding in USD, model hedges and include settlement as a use.
Revolver usage: Only drawn amounts are sources. Letters of credit use capacity and incur fees without cash proceeds.
Equity awards: Confirm performance conditions, double-trigger rules, and payroll withholding. Validate against plan documents with a clean waterfall.
Solvency: Build the solvency test off accurate cash and uses. Do not inflate cash to balance sheet funded by debt if restricted payments block upstreaming.
Syndication and flex: Higher OID or spreads reduce net proceeds. Model downside and confirm coverage.
RWI scope: Do not assume policies cover known issues or forward-looking items. Right-size escrows and special indemnities.

Comparisons and alternatives: how the table changes

Stock vs. asset deal: Asset deals can deliver tax basis step-ups and narrower liabilities but add transfer taxes and assignment work. Stock deals preserve operations and contracts but carry liabilities.
Take-private: Add exchange agent, appraisal rights, SEC filing fees, proxy costs, and treatment of converts and equity-linked awards.
Minority or structured equity: Uses shift toward primary capital for capex and liability management instead of seller proceeds.

Timeline and owners: who does what and when

From term sheet to signing, build the initial table to set enterprise value, leverage, and the equity check. Debt commitments rely on it, and agreement definitions should be negotiated around it. From signing to closing, track cash, debt, and working capital; lock transaction expenses; finalize cap table waterfalls; complete security and KYC; and obtain approvals. During closing week, agents coordinate payoffs and wires; counsel circulates the final funds-flow; equity and debt fund; wires go to sellers, lenders, escrows, and fee payees; post-close, file releases and start purchase accounting. Owners are split across sponsor finance for the model and lender coordination, buy-side counsel for definitions and mechanics, debt counsel for financing documents, lenders for conditions precedent and funds flow, tax for cost classification and 163(j), and auditors for the opening balance sheet.

Quality control and reconciliation: make it balance twice

Balance by currency: Uses must equal sources in every funding currency.
Purchase price tie-out: Reconcile consideration to the agreement, including escrows and adjustments.
Expenses evidence: Tie fees to invoices and engagement letters and match responsibility under the agreement.
Debt proceeds consistency: Match closing certificates and reflect OID or fees consistently in cash and accounting views.
Pro forma integrity: Reflect purchase accounting, new debt net of issuance costs, old debt extinguishment, write-off of deferred financing costs on retired facilities, and elimination of historical equity. Avoid the common traps listed in three-statement models errors.

Quick kill tests: remove wishful funding

Revolver undrawn: If covenants require it, remove from sources and add minimum cash if the term loan requires it.
Target cash: Confirm it is unrestricted and repatriable without friction.
OID flex: Reduce proceeds and confirm the equity plug still covers all uses.
RWI payer: If buyer-borne, add premiums and taxes to uses.
Equity rollover risk: If terms are not signed, assume cash settlement.
Hedge breakage: Add ISDA close-out amounts if hedges are terminated.
Regulatory costs: Add UK stamp duty at 0.5 percent on share purchases and HSR fees if the threshold applies.

Build the table: a practical sequence

Start with enterprise value: Translate to equity value by subtracting net debt and debt-like items per the agreement. Adjust for working capital versus the peg if using completion accounts and lock the currency.
List uses by priority: Pay off debt and hedges, fund purchase price net of escrows, pay expenses, settle equity awards and payroll taxes, fund cash to balance sheet, and include taxes and transfer costs.
Size debt capacity: Fit within leverage and fixed-charge constraints. Set term loan, second-lien or unitranche, and mezzanine as needed. Include OID and upfront fees.
Add non-cash sources: Include seller notes and rollover equity.
Plug equity: Add sponsor, co-invest, and any preferred.
Reconcile and stress: Flex OID and expenses. Align all definitions. Circulate to lenders and counsel early.

What belongs and what does not: keep the scope tight

Include only closing cash flows and non-cash instruments that substitute for cash at closing. Exclude post-closing earnouts and deferred payments unless escrowed. Exclude undrawn revolvers and future capex or integration costs. Include only committed fees at closing, and include hedging only if executed.

Governance and information rights: capital stack sets control

Capital structure drives control and reporting. Preferred and minority co-investors often require consent rights and transfer restrictions. Junior debt and HoldCo PIK instruments may expect information rights or observer seats. Confirm governance documents match the economics, including dividend stoppers, restricted payments, and change-in-control triggers.

Bridge to lender deliverables and cash control after close

Deliverables that mirror sources and uses

Produce a final funds-flow that mirrors the table. Attach payoff letters, escrow agreements, invoices, and wire instructions. Prepare the solvency certificate with final numbers. Update bring-downs for representations on financials, indebtedness, and no material adverse change. If your model drives the outputs cleanly, your lenders can check conditions faster.

Cash control and intercompany mechanics

Set controlled accounts for receivables and concentration if required. Implement cash dominion triggers for an asset-based revolver. Put intercompany cash management agreements in place to align tax, liquidity, and covenant compliance.

Sensitivity and scenario planning: protect the equity plug

Run downside cases for higher fees, OID flex, lower rollover, FX swings, and higher expenses. Recheck 163(j) and covenants under each scenario. Ensure the equity backstop covers shortfalls without triggering governance or regulatory issues. If in doubt, add a cash cushion and pre-clear the sources and uses with your agent. For methodology discipline, structure scenarios alongside your base revolver and term loan cases in the same workbook.

Analyst workflow: a 20-minute audit routine

A fast, reliable close-week check saves deals. Use this repeatable routine to catch 90 percent of issues.

Five-minute tie-out: Agree purchase price, debt-like items, and escrows to the latest draft purchase agreement and disclosure schedules.
Four-minute proceeds check: Confirm gross, OID, and fees for each facility match commitment papers. Recalculate net cash and compare to the table.
Four-minute awards audit: Rebuild the equity award waterfall with current cap table and plan terms. Reconfirm payroll taxes.
Three-minute currency pass: Sum sources and uses by currency, then test FX hedges and value dates against funding memos.
Two-minute minimum cash test: Check covenant-required minimum cash and revolver conditions. Reduce or add cash to balance sheet as required.
Two-minute pro forma sync: Ensure the pro forma reflects the cash view and the GAAP netting so the opening balance sheet and the three-statement model reconcile.

Conclusion

Treat the sources and uses table as a legal document and an execution script. Tie every line to an agreement, invoice, or commitment, mirror GAAP netting in the pro forma, and size day-one cash with both lender and tax constraints in mind. Lock cap tables, award terms, and expenses early, and build cushions for OID flex and 163(j). Do those things and your table will fund cleanly, your lenders will clear CPs faster, and your post-close accounting will reconcile on the first pass.