Case Study Debt Financing
Hey guys! I have been given a case study to prepare for an Investment Banking AC. They want me to recommend on the best financing solution of a company into a new market.
I have been given the company’s financial profile (Revenue, CapEx and Net Leverage) and their activities across various countries (Global Revenue, Market Penetration and Growth Prospects).
I have also been given an overview of their financing options and selected financial data for their peers. I have not even been given a cash balance of the company so I am really struck. Any suggestions on how to approach this? Thank you very much for your help.
Are they rated? A credit rating is the prerequisite for most of the most popular financing options. Some starters:
Bank loans are usually the cheapest financing but there is only so much capacity and they have the most restorative covenants.
The us term loan b usually requires a rating, is less restrictive than bank loan, and cheaper than a bond.
Bonds are less restrictive but almost always require ratings and have virtually unlimited capacity in terms of deal size. More expensive than loans and usually not secured as loans would be.
Mezz/pref/convertible is your cash flows don’t fit into the above buckets are more expensive but allow more freedom.
Common equity is usually the most expensiv3 but won’t increase leverage and does not affect or in some cases helps credit ratios.
Thanks for your input dzcelts!
The options for financing I have been given are loan, bond and placement. Those are the options for financing and they have been given a certain yield on them. How can I find the return on equity?
Thanks for your reply!
Basically, they have not been given any credit rating at all.
I dont even have the cash balance so I dont know how to calculate interest income. I have been given EURIBOR + (some rate) which is the yield on a bank loan. Could I calculate the interest income easily and the interest expense?
You need to know how much amortization the loan requires and which Eurobond (usually the 3month) to add to.
Here's some stuff you may have seen, but if you haven't it might help you build a solid case. Check out synethtic rating and optimal capital structure in particular (make sure to donwload to your desktop Excel for full content)
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/spreadsh.htm#cf
Thank you so much for your input!
are you required to discuss covenants (financial or otherwise)?
@metronorthdude" Yeah I am. I have been given the following: Loan - Maintenance Placement - Flexible bond - Incurrence
What do these mean and how can I include them in my pitch?
Appreciate the help!
hey how did this end up going - i have a similar thing to you
@bilal-syed -
I can definitely help in this arena. DM me or give the thread more info, and I'll give insight / send docs / links / tell u what to do. Good exercise!
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