IDEAL LEVELS OF LEVERAGE?

On companies with healthy EBITDA margins (20%+) and solid and consistent YoY revenue growth (10%+). What would be the ideal amount of total debt (senior + seller financing). The bank is willing to consider a total debt (SF+Sr Debt) of 75% of enterprise value. However, I am wondering if that is too much? Some feedback I have received has suggested a good rule is 2.5X to 3X EBITDA for total debt, which would roughly translate to 50% LTV in this case. Given the healthy margins, there is ample FCFs to support leverage of up to 75%.

Please assume the plug would be outside/investor equity and also assume the sr. debt is seven years (non-SBA, no PG), and the amortization on the SF is short 2-3 yrs.



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