Debt Advisory Case Study // Frankfurt, Germany

To prepare thoroughly for a debt advisory case study, especially one focused on LBO financing and acquisition financing, here’s what you should focus on:

1. Cash Flow Modelling

• Understand the Basics: Be comfortable with building and interpreting a cash flow model. This includes projecting cash inflows and outflows, calculating EBITDA, and understanding unlevered and levered free cash flows.
• Key Components: Ensure you can model working capital, capex, taxes, interest payments, and debt amortization.
• 13-Week Cash Flow Model: Familiarize yourself with this detailed short-term cash flow analysis, as it’s often used in distressed or acquisition scenarios.

2. Credit Structuring

• Capital Structure Analysis: Be prepared to analyze and recommend an optimal capital structure. This includes understanding senior vs. subordinated debt, mezzanine financing, and equity contributions.
• Debt Sizing: Know how to determine the appropriate level of debt based on cash flow coverage ratios (e.g., Debt/EBITDA, Interest Coverage Ratio).
• Covenants: Understand the role of financial covenants in credit agreements and how they protect lenders.

3. Role of a Debt Advisor

• Client-Centric Approach: Be ready to take the perspective of a debt advisor, focusing on the client’s needs, such as minimizing financing costs, ensuring flexibility, and aligning with the client’s strategic goals.
• Scenario Analysis: Be prepared to run different scenarios (e.g., base case, downside case) to stress-test the financing structure.

4. LBO Financing

• LBO Mechanics: Understand the key drivers of an LBO model, including purchase price, leverage levels, and exit assumptions.
• Debt Tranches: Be familiar with the different types of debt used in LBOs (e.g., term loans, revolvers, high-yield bonds) and their characteristics.

5. Presentation and Recommendations

• Clear Communication: Practice presenting your findings and recommendations in a structured and concise manner.
• Justify Your Decisions: Be ready to explain why you chose a particular financing structure or credit solution, backed by data and analysis.

Resources to Consider:

• Stephen Moyer’s Distressed Debt Analysis: Offers insights into debt mechanics and restructuring.
• Houlihan Lokey Case Study: Provides a practical overview of debt advisory scenarios.
• Distressed Debt Investing Blog: While technical, it’s a great resource for staying updated on market trends.

By focusing on these areas, you’ll be well-prepared to tackle the case study and demonstrate your ability to think like a debt advisor. Good luck!

Sources: https://www.wallstreetoasis.com/forum/investment-banking/how-to-prepare-for-restructuring-technical-questions?customgpt=1, How to Prepare for Restructuring Technical Questions, Seeking advice on Corporate Banking modeling, Q&A: Former MBB Consultant