RE: Minority Interest in LBO Model
Your question is a great one! Minority Interest treatment is summarized as follows: 1) In standalone valuation context, INCLUDE MI as part of TEV (Total Enterprise Value) because it is considered a form of capital since greater than 50% ownership forces consolidation 2) In credit analysis (... Your question is a great one!
Minority Interest treatment is summarized as follows:

1) In standalone valuation context, INCLUDE MI as part of TEV (Total Enterprise Value) because it is considered a form of capital since greater than 50% ownership forces consolidation

2) In credit analysis (leverage statistics and ratios), EXCLUDE MI b/c it is not considered a form of debt from banks/rating agency perspective and not a future claim like interest

3) In M&A and LBO analysis, you NEVER INCLUDE (that means EXCLUDE) MI in Sources & Uses b/c when you buy a company, you are buying its current structure. You are not buying out the minority shareholder that owns less than 50% of that subsidiary (of which you own greater than 50%). If you are buying out that minority shareholder to get 100% ownership (or whatever %age) then that is a separate transaction, typically modeled out right before the actual LBO.

For a video clip explanation of item #1 above, go to:
http://www.wstselfstudy.com
click on Free Video Clips and click on Corporate Valuation (TEV explanation)
or http://www.youtube.com/watch?v=taixlQP03Ps Read More

Re: D&A is different on the I/S and CF, which to use ??
The negative value forces CAGR to be impossible to calculate. See this link for a good explanation and options: http://www.experiglot.com/2008... The negative value forces CAGR to be impossible to calculate. See this link for a good explanation and options:

http://www.experiglot.com/2008/09/15/ca ... -negative/

How to calculate a compound annual growth rate when the beginning value is negative?
The basic answer is that you can’t. Why?
Let’s look at the formula for calculating CAGR:

CAGR = (ending amount / beginning amount)(1 / # of years) – 1

Mathematically, because you’re taking a root of a number, if you have a negative beginning amount and a positive ending amount, you’d be taking the root of a negative number. Unless you have an odd # of years, you can’t compute this mathematically without going into imaginary numbers

Even if you do happen to have (or force) a negative # of years, the result will also be a negative growth rate, which also doesn’t make sense in terms of what’s going on.

The best way to deal with situations where you have a negative initial value is to just footnote it and calculate CAGR based on the first positive initial value you have. So, for example, if you had a project that lost $500 in year 2003, then gained $100 in year 2004, and ended in year 2007 with $500, you might write the following:

Revenues grew from $100 to $500 during the period from 2004-2007 (CAGR of 71%). Note that this excludes the initial 2003 year, when the project lost $500.
Remember, your goal is to present an accurate picture of what’s going on. That almost always means using a few more words to reflect and explain reality rather than just provide a single, calculated figure. Read More

RE: Modifying the Debt Sweep to Target a Debt/Capital Ratio
You can do a quick calcuation in your Cash Flow Statement, as part of CFF to calculate the current Debt / Capital ratio (typically Debt / Debt + Book Equity). Let's say your current ratio is 35% and you want to maintain 40% per our video example. Then you would figure out the amount of extra debt re... You can do a quick calcuation in your Cash Flow Statement, as part of CFF to calculate the current Debt / Capital ratio (typically Debt / Debt + Book Equity). Let's say your current ratio is 35% and you want to maintain 40% per our video example. Then you would figure out the amount of extra debt required to borrow (using simple algebra) and then add a new row in CFF, most likely under your Change in Debt (the one that comes from Debt Sweep). This would automatically increase the cash balance that you have. Keep in mind, if you are already at, say 42%, then don't do additional borrowings, but don't force a paydown since you have no extra money to pay down the debt. Read More

Re: Macro error: compile error in hidden module: thiswork
Hi David, We appreciate your thoroughness in outlining what you've done so far to help us isolate the problem. At this point it likely will require selectively removing certain functions/commands and seeing which one(s) are causing an issue. We've escalated this issue to Level 3 Support and will g... Hi David,

We appreciate your thoroughness in outlining what you've done so far to help us isolate the problem.

At this point it likely will require selectively removing certain functions/commands and seeing which one(s) are causing an issue. We've escalated this issue to Level 3 Support and will get back to you as soon as possible.

Thank you for your continued patience! Read More

RE: Valuation of fair market value of debt converting to equity
You are correct but then you aren't. Normal valuation techniques used in valuation DO NOT apply in distressed examples. So you can throw out CAPM, WACC, etc out the door for restructuring and distressed simply because CAPM and DCF are used for going concerns and highly liquid among all the other gaz... You are correct but then you aren't. Normal valuation techniques used in valuation DO NOT apply in distressed examples. So you can throw out CAPM, WACC, etc out the door for restructuring and distressed simply because CAPM and DCF are used for going concerns and highly liquid among all the other gazillion CAPM assumptions associated with that theory.

Thus your item (2) would be more appropriate. Say you calculate TEV to be $100 (for instance, via EBITDA multiple). Post Chapter 11 emergence, let's say there's zero debt. Then calculate Equity Value ($1,000 or whatever depending on your debt assumption) and then figure out your post Chapter 11 ownership percentage. It's that simple.

As for DCF approach, you need a discount rate - that's your question. If the company is fundamentally viable post-emergence, then the uncertainty is gone, so traditional CAPM, WACC would apply - why not? If problems still abound, then do what private equity firms do - apply a 20% to 30% discount rate because that's the required return distressed investors (similar to private equity/LBOs) require. Read More