UMM PC Case Study

Based on the most helpful WSO content, here are some insights to address your questions for the UMM PC case study:

1. Using Historicals to Get to Structuring EBITDA:

   • Yes, it is fine to use historicals to get to your structuring EBITDA if you are only provided a CIM. Historical financials can give you a good sense of the company's performance trends, margins, and cash flow generation. This approach is commonly used when more detailed diligence materials like FDD are not available.

2. Deciding Leverage Capacity Beyond Looking at Comps:

   • Beyond looking at comps, you can assess the leverage capacity of a business by:
     • Analyzing Cash Flow: Look at the company's ability to generate free cash flow, as this will determine its capacity to service debt.
     • Balance Sheet Strength: Evaluate the balance sheet to understand existing debt levels and liquidity.
     • Industry Factors: Consider industry-specific leverage norms and cyclicality.
     • Historical Performance: Assess historical leverage ratios and coverage ratios (e.g., interest coverage, debt/EBITDA).

3. Deciding on the Call Structure:

   • The call structure is typically more relevant for bonds, but in the context of direct lending, you might consider:
     • Prepayment Penalties: To protect against early repayment risk.
     • Covenants: To ensure the borrower maintains certain financial metrics.
     • Amortization Schedule: To manage repayment timelines and reduce risk.

4. Sensitizing Given IRR / MoIC and Entry / Exit Multiples Aren’t That Relevant in PC:

   • In private credit, you might focus on:
     • Default Risk: Sensitize for different default scenarios and recovery rates.
     • Interest Rate Sensitivity: Assess how changes in interest rates impact the borrower's ability to service debt.
     • Cash Flow Variability: Sensitize for different levels of cash flow generation and its impact on debt servicing.
     • Covenant Breaches: Evaluate the impact of potential covenant breaches and the lender's remedies.

These points should help you prepare effectively for your case study. Good luck, and looking forward to your feedback and insights once it's done!

Sources: How to analyse business models?, https://www.wallstreetoasis.com/forum/private-equity/then-and-now-compbanker?customgpt=1, THEN and NOW: @CompBanker, Private Credit Resources and Prep, Q&A - Mid-Market Turnarounds