Capital Structure (LBO) Modeling

Description

This hands-on course focuses on the skills required to build and incorporate a complex capital structure into a financial model. Participants will recapitalize a company’s balance sheet and then forecast specific pieces of debt and equity so that the model can be used for credit purposes or as a Leveraged Buyout (“LBO”) model.

Prerequisites

This course builds on "Building a Financial Model (of a Company)", so participants may want to complete that course prior to taking the "Capital Structure (LBO) Modeling" session.

Time

8 - 16 hours, depending on the amount of material to be covered

Learning Topics

Incorporate an Acquisition or Financing into a Model

Build a Sources and Uses schedule within a model
Incorporate all transaction fees
Recapitalize a company’s balance sheet

Forecast Debt and Equity

Properly incorporate Senior Term Debt
Create a robust bank operating line (or revolving credit facility) with a cash sweep
Incorporate variable interest rates based on pricing grids
Calculate a stand-by fee on the undrawn portion of the bank operating line
Utilize a margining formula to monitor the size of a company’s bank operating line
Incorporate Mezzanine Debt
Build a provision for non-cash Payment in Kind (PIK) interest
Create a well-designed shareholders’ equity schedule
Properly forecast the company’s balance sheet
Understand model circularity
Learn to create a “circular reference breaker” to rid a model of undesirable error messages if the model crashes

Analyze Investor’s Expectations

Properly calculate the investor’s IRR
Understand and incorporate operating and debt ratios
Include ratios with tightening covenants
Create “flags” if a covenant has been tripped
Incorporate other advanced analyses to evaluate the transaction from the perspective of the sponsor