Capital Structure (LBO) Modeling


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.


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.


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
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