>In this case the PE firm would have been better off not getting a loan to begin with - it would have kept the interest payments to itself. That assumes the PE

>In this case the PE firm would have been better off not getting a loan to begin with - it would have kept the interest payments to itself. That assumes the PE company can predict exactly how long the expect the business to survive after takeover. They can't. Both sides (the lender and the PE firm) are evaluating the company being purchased and the plan set out by the PE firm. The loan terms are set such that both sides feel they can make money on the deal. The fact that PE doesn't make money on every deal indicates that they can be wrong.