Two-Day Programme
Delegate places are limited due to the practical nature of the course. Laptops are provided.
LBO Modelling Overview
Review of LBO model to:
- Explain terminology used
- Model links between Income Statement, Cash Flow & Balance sheet;
- Model simple uses & sources statement; and
- Model simple proforma balance sheet
Uses of Finance:
Purchase Equity
- Current pricing trends, distressed equity pricing
- Target characteristics
- Typical valuation metrics
-EBITDA
-DCF
- Size/Control/Liquidity discounts
- Buying shares or assets
- Explaining cash free or debt free purchases
- Common issues with completion balance sheets: what are you actually buying?
Structuring purchase to maximise fund returns
- Tax issues
- Managing the investment
Refinancing needs
- Existing debt when can/should you keep it?
- Valuing existing debt, distressed debt – special case?
- Capex requirements
- Working capital needs
Financing fees
- Typical trends in arrangement fees and commitment commission spreads
- Institutional equity fees
- Typical transaction advisors costs
- Stamp duty costs
Case study: Modelling the uses of Finance
Sources of Finance
Institutional and Management Equity
- Typical funding terms (dividend, capital and voting rights) and target returns
- Protecting the funds investment
- Incentivising the management, management exits/ratchets
Debt providers and their typical characteristics
- Traditional/new lenders
- Senior tranche profiles
- A, B, C, RCF
- Subordinated tranche profiles
- Second lien
- Mezzanine (with/without warrants)
- PIK
- High yield bonds
- When to issue public or private debt
- Current trends & issues
Capital Structure
- Optimum capital structure?
- Stressing for defaults
- Typical Financial Covenants
- General covenants
- Ideal capital structure
- Calculating the weighted average cost and duration of a lending structure
Case study: Modelling the Sources of Finance
Modelling the Proforma Balance Sheet
- What changes
- Treatment of costs/purchased goodwill
- How proforma balance sheets have changed
- Use of off balance sheet leasing structures
- Improving Working capital ratio's
- Ongoing revision of the capital structure:
- Buying back debt
- Leasing
- Looking at the risks associated with different types of financial structures
Case study: Modelling the proforma balance sheet
Modelling the cashflows
- Estimating cashflows from operations and investing
- Calculating the funding shortfall/surplus
- Modelling the new debt balances after mandatory and discretionary debt & interest payments/new issues
- Incorporating the cash working capital needs
- Flexing the Sources of funds: Modelling the Management, Institutional, Preference Equity and Revolver, Senior and Subordinated debt
- Estimating an optimum financing structure – maximising all parties IRR ratio’s and lenders ratio’s...
Case study: Modelling exit valuation and IRR's
Sensitivity Analysis
Restructuring - What happens if it all goes wrong...
- Liquidation or going concern - valuing the options
- Balancing the competing interests
- Senior debt
- Subordinated debt
- Equity classes
- Restructuring objectives
- Options for:
- Senior debt
- Subordinated debt
- Equity classes
- Revising cashflows, forecasting future returns.
Case Study: Restructuring the balance sheet, estimating your pay back/return from a work out