What is the 'tax shield' in an LBO?

• The tax saving from interest being deductible, which lowers cash taxes and adds to returns
• A statutory subsidy paid to companies that carry leverage, which offsets a portion of their interest cost
• A dedicated cash reserve the company funds each period to cover its future tax bills
• The share of principal a lender agrees to forgive, reducing the balance owed at exit
• The tax the sponsor pays on carried interest earned when the investment is realized