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LBO Modeling

Participants learn how to structure an LBO and model the impact of the new financing structure. This session concentrates on understanding the implications (both modeling and deal) of the finance structuring. Participants complete a fully integrated model with an income statement, balance sheet and cash flow statement.

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Description

LBO Modeling

Participants learn how to structure an LBO and model the impact of the new financing structure. This session concentrates on understanding the implications (both modeling and deal) of the finance structuring. Participants complete a fully integrated model with an income statement, balance sheet and cash flow statement.

Key topics

  • General overview of a levered transaction: basic principles
  • Drivers of value creation in a levered transaction
    • How leverage increases the return on equity
    • What makes a good LBO candidate
  • The concept of cash flow lending
    • The lender’s perspective: risk, return and exit routes
  • Structural subordination
  • Financial instruments used in levered transactions
    • Senior debt (revolving facility, term A, term B, term C)
    • Second lien
    • Mezzanine loans
    • High yield bonds
    • PIK notes
    • Preferred shares, shareholder loans, vendor loan notes
    • Ordinary equity
  • Build a full LBO model from a template
    • Main deal assumptions: focus on cash flow drivers and how to sanity-check preliminary assumptions
    • Sources and uses of funds table
    • Ownership structure
    • Goodwill calculation
    • Creating the opening balance sheet
    • Deal adjustments, including amortization of debt issuance fees
    • Tax loss carry forwards
    • Cash flows available for debt servicing
    • Repayment schedules for individual debt instruments
    • Acceleration of debt payments using a cash sweep mechanism
    • Modeling the revolving credit facility
    • Circularities and the  interest calculations
    • PIK interest
    • Credit ratios
    • Calculation and interpretation of returns to the equity investors
    • Calculation and interpretation of returns to mezzanine investors
    • Sensitizing the outputs of the analysis
    • Modeling different operational scenarios using Excel functions