## The Mortgage Payment Miracle
When a Private Equity firm buys a $100M HVAC company via a Leveraged Buyout (LBO), they typically only put up $30M in cash. They borrow the other $70M. Why are PE returns so incredibly high even if the underlying company performs moderately?
### FAQ
**Q: How do they double their money without growing the business?**
A: Debt paydown. The HVAC company generates $12M a year in free cash. Every single dollar of that is used to pay down the $70M loan. After 5 years, $60M of debt is wiped out. If the PE firm sells the company for the EXACT same $100M they bought it for, they only owe $10M to the bank. They keep $90M. Their initial $30M check turned into $90M (a 3.0x return or a 24.5% IRR) without growing revenue by a single penny.