What are the types of debt in an LBO?

The main types of debt include senior debt and junior debt.

Senior debt is usually provided by the banks and has priority on cash flows and assets over the junior debt. This makes it less risky than junior debt, and therefore it pays a lower interest rate. The interest is a floating rate, which is a benchmark rate (SOFR) plus a spread. It’s prepayable, meaning that it can be paid down before the debt matures.

The revolver is usually the most senior piece of debt and acts like a line of credit that can be borrowed (drawn) and repaid anytime as long as the total balance does not exceed the maximum limit.
Term loan A is usually the next piece of senior debt, which is a fixed loan that cannot be drawn anytime like the revolver, but it can be repaid anytime. It also has a fixed mandatory debt repayment amount per year (known as amortization), usually 1-5% of the original loan.

Term loan B is like term loan A, but provided by institutions (eg private credit funds) rather than banks.
Junior debt is provided by institutions like private credit funds and has lower priority on cash flows and assets compared to junior debt. It is riskier, pays a higher interest rate, and is not prepayable. This interest rate is a fixed interest rate and can also be payment-in-kind (PIK), meaning the actual cash payment of the interest expense is deferred until the debt matures or the company is bought out. The interest expense is accrued on top of the debt balance and increases the debt balance.

Some types of junior debt include subordinated debt, mezzanine debt, and convertible debt. Convertible debt (and potentially mezzanine debt) can be converted to equity at a certain discount.