Debt Modelling (with LBO)

Overview

During this course delegates will construct a debt cash flow model in the context of an LBO transaction. The inputs to the model will be the operating cash flows of a business alongside some typical LBO debt constraints, and via the modelling of the debt cash flows, the Internal Rate of Return (IRR) of the transaction will be determined (and subject to a sensitivity analysis). Best practice financial modelling will be applied throughout.

This one-day course is designed for finance professionals looking to improve their financial modelling skills in the context of a typical debt model. Debt modelling poses particular problems that require solutions based around specific Excel functionality. LBO theory is covered briefly at the start but the focus is very much on the practicalities of building the model.

Who is this for?

Finance professionals who need to create, analyse and interpret debt cash flow models. The course is set in the context of an LBO transaction, but is relevant to any form of debt modelling. Delegates without a good understanding of basic excel functionality should first attend the one-day Introduction to Excel course.

What will you learn?

• Key features of an LBO transaction
  • Length of investment
  • Exit routes – Initial Public Offering (IPO), trade sale, secondary buyout, liquidation
  • Cash generation and profitability growth of business being acquired
  • Source, length and credibility of forecasts
  • Finance mix
• Creating the operating model
  • Forecasting the operations of the business
  • Sales, EBITDA and working capital
  • Capex and depreciation
• Sources and uses of funds
  • Uses of funds
    • Equity acquisition
    • Refinanced debt
    • Fees
  • Sources
    • Debt capacity constraints
    • Senior tranches
    • Mezzanine
• Building the debt schedules
  • Circularity issues
  • Capital repayment options
  • PIK interest
  • Revolver
  • Cash sweep
  • Cash flow waterfall
• Tax
  • EBIT vs PBT
  • Tax treatment of interest
• Equity return
  • IRR
  • Cash/money multiple
• Sensitivity analysis

Please read the following guidance carefully, which applies only if you are attending this course online:

• • In addition to the Online Classroom, you will need to have your own version of Excel open to complete the exercises
  • It is difficult (but not impossible) to do this with only 1 screen as you will need to be regularly switching between open windows. We recommend to either:
    • Extend from a computer to a 2nd screen, or
    • Use 2 computers, or
    • Use a tablet for the online classroom and a computer for the Excel
  • You are strongly recommended to perform the exercises on a PC rather than a MAC. Using a MAC is possible but the trainer will be unable to help you with the required shortcuts.

Related courses

Introduction to Excel

Financial Modelling - Comprehensive