What kinds of debt are used in an LBO?

I'd go from the most senior and cheapest to the most junior and most expensive. The further down you go, the higher the interest rate, because that lender is paid later if things go wrong. At the top is bank debt, which is secured on the company's assets. First is the revolver. The company can draw on it and repay it as needed, so it's mostly there for working capital. Then term loans. A term loan A is held by banks and is paid down in steady installments. A term loan B is sold to institutional investors, repays only a small amount each year, and the rest is due at maturity. Bank debt has a floating rate and can usually be repaid early. Below that are senior notes or high-yield bonds. They're usually unsecured, pay a fixed coupon, and have no repayments until maturity. They cost more than the loans. At the bottom is mezzanine or subordinated debt. It ranks behind everything else, so it's the most expensive. Part of its return often comes as interest that's added to the balance instead of paid in cash, or as warrants on the equity. Below all of it sits the sponsor's equity.

I'd go from the most senior and cheapest to the most junior and most expensive. The further down you go, the higher the interest rate, because that lender is paid later if things go wrong. At the top is bank debt, which is secured on the company's assets. First is the revolver. The company can draw on it and repay it as needed, so it's mostly there for working capital and is often undrawn at closing. Then term loans. A term loan A is held by banks and is paid down in steady installments. A term loan B is sold to institutional investors, repays only a small amount each year, and the rest is due at maturity. Bank debt has a floating rate and can usually be repaid early. That suits an LBO, because spare cash goes to paying it down. The revolver and term loan A carry maintenance covenants. Term loan B is usually covenant-lite. Below that are senior notes or high-yield bonds. They're usually unsecured, pay a fixed coupon, and have no repayments until maturity. They cost more than the loans. They're also harder to repay early. At the bottom is mezzanine or subordinated debt. It ranks behind everything else, so it's the most expensive. Part of its return often comes as interest that's added to the balance instead of paid in cash, or as warrants on the equity. Below all of it sits the sponsor's equity. Choosing between them is a trade-off between cost and flexibility. I'd fill up on the cheapest secured debt first, as much as lenders allow. I'd add bonds or mezzanine only if the deal needs more, because each layer costs more but asks for less cash. A business with steady cash flow can carry more of the bank debt that has to be paid down. One that needs its cash for growth is better served by debt with no repayments until maturity.