why don$$t financial sponsors fund the entire debt portion of the capital structure in an LBO transaction with senior debt?

Senior debt is only available to borrowers with a strong credit profile.

Senior debt covenants are less restrictive, offering more flexibility in the operational management of the company post$-$acquisition.

Subordinated junior debt is always cheaper than senior debt and thus preferred for the entire debt structure to minimize financing costs.

Senior debt lenders limit the amount they will lend, typically to a multiple of the company's EBITDA, due to the increased risk of default with higher debt levels.