Advanced LBO Modelling - ASPAC

Day One

Session 1 – Introduction and Basic LBO Model

• The drivers of leveraged finance
• Source and use of funds
• Key corporate debt structuring principles
• Estimating the debt capacity: multiples vs. cashflow available for debt service
• Income Statement and Cash Flow Statement
• FCF – debt repayment
• Exit
• Return and sensitivity
• Exercise – complete a Basic LBO model

Session 2 – Intermediate LBO Model

Session 2a - Equity Financing

• Types of equity
• Management versus private equity
• Ratchet mechanisms and “Sweet” equity
• Calculation of risk and return
• Internal rates of return (IRR)
• Model: Establish the level of equity the private equity investor will require versus the management team, with a ratchet mechanism

Session 2b - Debt Financing and Debt Capacity

• Senior debt – different tranches
• Debt capacity analysis
• Structuring and pricing the deal
• Transaction costs
• Cash sweep across debt instruments
• Structure the relationship between the players
• Model: Determine the level of debt the company could obtain

Session 2c - Modelling a Debt Waterfall

• Cash Flow available for Debt Service
• Interest income/ (expense)
• Cash Flow available for Debt repayments
• Mandatory Repayments: amortising, balloon and bullet
• Issuance/ (repayment) of revolver
• Cash available after mandatory repayments and revolver
• Covenant constraints on cash distributions to equity investors
• Accelerated repayments

Session 2d - Mezzanine Financing

• Mezzanine (with/without warrants)
• PIK (Payment in-kind)
• Shareholder loans and preference shares
• Pricing, defaults, and covenants
• Analysis of suitability and risks
• Model: complete the cash sweep section of the model

Day Two

Session 3 – Advanced LBO Model

• Deal price and deal goodwill/step-up
• Source and use of funds schedule
• Assumptions – three statement model (including an operating model) and cash available for debt servicing
• Establishing senior debt level
• Determine the equity split – management and private equity
• Structure of the mezzanine finance
• Create a detailed debt cash sweep and mandatory debt repayments (revolving credit facility)
• Calculate and adjust any debt issuance fees
• Determine any taxation issues
• Determine the key ratios
• Exit strategy and exit values
• Value creation schedule with a value creation bridge
• Internal rates of return for all investors
• Sensitivity analysis

Session 4 – Leveraged Recapitalisations– Case Study

• Benefits of a leveraged recapitalisation
• Recapitalised Source and use of funds schedule
• Assumptions – interest and new debt capacity
• Integrating the new debt funding within a waterfall
• Integrating the new interest rates post-recapitalisation
• Create a debt cash sweep and mandatory debt repayments (RCF)
• Calculate and adjust any debt issuance fees
• Determine the key ratios
• Exit values, with/ without the recap
• Value creation schedule with a value creation bridge
• Internal rates of return for all investors
• Sensitivity analysis
• Presentation

Session 5 – HoldCo-OpCo – Case Study

• Structural subordination
• Capital structure at OpCo: bank debt and high yield
• Capital structure at HoldCo: mezzanine and shareholder loan
• Cash flows between the structures: dividends/investment income