Hi All,
I have second rounds with Crescent Capital on Monday. It's going to be a 3 hour model / memo test. Has anyone gone through this? What can I expect. I hear I would have to model warrants. I'm not quite sure how to approach that. Any help with be much appreciated.
Thanks!
Hey there,
I have never been on this interview, but usually these kinds of tests require you do build a 3 statement standalone model. For warrants, model them just like regular call options, the only difference is that warrants have a longer maturity (10 years). The only place where warrants come into play is for share count to get to a diluted EPS or price per share figure. Use the treasury stock method for this, where you find how much shares are being purchased for (if this is an LBO case study), and assume the following:
Exercise warrants (assuming market price is above the warrant strike price) proceeds (Proceeds = Strike Price x Number of Warrants Exerciced) Less: Shares Repurchased in the Market (Shares Repurchased = Proceeds / Current Share Price (higher than the strike price of the warrants).
This only matters for finding the shares outstanding, you can assume 1% shares outstanding increase otherwise for per-year shares outstanding numbers.
In your 3 statement model, to get anything to balance, make sure of the following: 1. In any year, retained earings equals 2014 RE = 2013 RE + 2014 Net Income - 2014 Dividends 2. Stock compensation every year is added back to the net income in the cash flows statement and ADDED IN ENTIRETY TO ADDITIONAL PAID IN CAPITAL 3. 2014 PP&E = 2013 PP&E + 2014 CapEx - 2014 Depreciation
That should do it, hope you succeed.
Thanks for the help. I spoke to a few other people, including a current associate. He told me that while the model is important, the memo and the qualitative analysis is much more important. However, now I feel pretty prepared. I also figured out how to model the returns on a mezz investment as well. The mezz investor is often given an equity kicker, like 5% of the ending total equity value at exit. A quick check to see if you're correct with your mezz returns is that it should equal the interest rate on your mezz debt
Bump. Anyone have any further insights?
Was this for direct lending or the mezz group? How did the model go? JPMortgage Boston Banker 4190
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