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What is Happening to "Existing Debt Tranche 1" in the "Debt Sweep" Worksheet, if "Refinance Option 3 - Refinance All-Existing Debt" is selected for Switch Cell "W3" in the LBO Summary?

I have just finished Complex LBO & Enhancements module and encountered this problem below. In the "LBO Summary" worksheet, if the "Refinance Option 3 – Refinance All-Existing Debt Refinanced” is selected for switch cell "W3", I then thought the “Existing Debt – Tranche 1” in the Debt Sw... Read More

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by Peter C.

added 7 years ago

Re: What is Happening to

Essentially, because the mandatory debt repayment is hard coded, when you flick the refi switch to be ON, the beginning balance goes to zero, but the hard coded repayments make the balance go negative, which is a big no-no (recall revolver formula that says no negative balances allowed in debt other... Read More

by WST Expert 1.

added 7 years ago

LBO Model -LBO Summary 1 Option 7 Shares Outstanding Section Cell Number AA39 - Outstanding Amount at Strike price of $33.00

Per JCP FYE 1/29/2005 (FY 2004) 10-K, page 40, Footnote 15 Stock-Based Compensation, Stock Options sub-section, the table lists Stock Options Outstanding at strike price of $33.00 is "5,668". However, in the video presentation, your input was "5,688", resulting in FDSO under Deal to be "276.128... Read More

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by Peter C.

added 7 years ago

Illustrative Valuation Summary Section

For the "Enterprise Value as a Multiple of:" part of the Illustrative Valuation Summary Section, I understand why we are going off the pasted values for the 'current' column of multiples, but not for the 'transaction' column; wouldn't we want to divide the 'transaction' column's Equity Value and Ent... Read More

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by Siegfried L.

added 7 years ago

Re: Illustrative Valuation Summary Section

Since we are building a dynamic model that works for standalone (status quo, no deal) and for LBO (and later for recap), the projected figures in column D will update as you change your deal scenario. In particular, Net Income will change as your interest changes when you add on debt in the capital ... Read More

by WST Expert 1.

added 7 years ago

Sources and Uses Questions

Does Management Rollover Equity affect Sponsor IRRs at all? Why? Would the Sponsors IRR be lower, higher, or the same assuming there was rollover? In the Quick and dirty LBO model in the sources there was 10,520 of debt. This equates to 6.3x debt to ebitda. I know it is different for every industry... Read More

by Guest 1.

added 10 years ago

Diluted shares outstanding

Can you assist in locating the exact moment on the Complex LBO video where the diluted shares outstanding formula: "MAX(0,10.78*(1-33/44.88)" is inputted. Cant quite locate it...

by Guest 1.

added 10 years ago

Minority Interest

With reference to LBO Modeling, Suppose a Company has 20% float in the market, while 80% is held by an Investor. - a Private Equity Fund is desirous of purchasing entire shareholding of the Investor (80%) in a Public Limited Company. The Fund is also desirous to acquire through tender offer 50% o... Read More

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by Guest 1.

added 10 years ago

Re: Minority Interest

OK. It is clear now that for purchase accounting, no proportionate consolidation. Now in the LBO Summary tab of the model (a) In "Uses of Funds", to calculate "Purchase Equity" I have multiplied share price by total number of outstanding shares irrespective that I am buying 90%... Read More

by Guest 1.

added 10 years ago

Re: Minority Interest

a) correct b) NCI would be created as part of the Trx Adj on the BS Pro Forma column. wipe out any old NCI and throw in new NCI = rollover equity amount. c) Usually, the debt providers (banks etc) like the debt as close to the cash as possible, so in your example, the operating company. the further ... Read More

by WST Expert 1.

added 10 years ago

10 Unanswered complex LBO questions

Hi, I have several quick qualitative questions: 1. In the debt sweep, I would imagine that if we get new debt, that new debt would become labeled as next year's existing debt. But we seem to be treating new debt and existing debt as different tranches. Why is this? What's the point of calling ... Read More

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by Guest 1.

added 10 years ago

RE: 10 Unanswered complex LBO questions

1) Why would new debt be labeled as next year's existing debt? It would also be labeled as such if it was short term. It would most likely be another completely new tranche of debt like the Sr Notes or something. Term Loan is a specific type of bank debt. 2) Correct, for credit ratings, you not o... 1) Why would new debt be labeled as next year's existing debt? It would also be labeled as such if it was short term. It would most likely be another completely new tranche of debt like the Sr Notes or something. Term Loan is a specific type of bank debt.

2) Correct, for credit ratings, you not only include capital leases, but also operating leases as a form of debt. We didn't bother including that and footnoted as such. You should. The reason we didn't is b/c the actual calculation goes beyond just adding Capital Leases and PVOL (PV of Operating Leases) but involves more intricacies such as imputed interest, etc and so since it wasn't a credit class, we didn't include it.

3) Preferreds many times receive partial equity treatment if they are very subordinated in the capital structure, or the covenants restrict payment, or has equity-linked features, like converts, PIKS, warrants, etc. And thus the best practice is to calculate both and negotiate/discuss with the rating agencies.

4) Correct, use book value not market value of equity. However, it's not necessarily b/c of liquidation. Mainly b/c market value of equity fluctuates and doesn't represent the actual dollars the company received in raising capital. You could spin it and say it's the Net $$ available after Assets - Liabilities, however, then there's the whole mark to market, etc so yes and no. While there are plenty problems with book value in our opinion, that's what's used.

5) This flows to the bottom of the Debt Sweep summaries and ultimately back into the Balance Sheet. See our Debt Sweep construction video in Complex LBO class.

6) We have to ask you to review the videos again - You are trying to isolate Long Term Debt b/c the Balance Sheet requires a breakdown of the Debt into Current and Long.

7) Please refer to a specific course, specific video and specific time.

8) Dividends are paid on actual basic shares outstanding, not the option-adjusted diluted shares. However, since we used PE ratios to gues-timate our stock price that we buyback shares at, PE x EPS is Price. And EPS is always quoted as Diluted EPS, so it is correct to do so. You aren't mixing and matching - these are two separate calculations altogether.

9) To be absolutely precise, yes, you should normalize the BS, although it is not best practice to do so. If you wanted to, the hit would be to Equity. It's immaterial b/c The BS gets blown out in an LBO anyway.

10) Estimated years are never provided on the 10K! 10K only has actuals. You may be referring to our Quick & Dirty LBO Modeling class in which we converted the Actual to Pro Forma. Thus, Estimated is your first year of projections and includes some actuals (say a day, a week, a month or a quarter, etc) whereas Projected is all future, not even one day of actuals. Read More

by WST Expert 1.

added 10 years ago

Options Exerciseable versus Outstanding - Complex LBO

Can you assist in definitions for me as a little confused, this also applies to the Quick & Dirty Dilution model: 1. Options Outstanding: options currently held by investors which will be exercised when stock price is in the money 2. Options Exerciseable: what is the difference between this an... Read More

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by Guest 1.

added 10 years ago

Complex LBO - tender costs

In the model we take a % of current debt to work out the tender costs but H refers to modelling out the debt and taking NPV of interest/redemption in order to do it absolulutely correctly. What do you mean by this? If you model out the debt and take NPV how do you then calculate the tender costs fro... Read More

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by Guest 1.

added 10 years ago