“Create” meaning in RX
This feels elementary so I apologize but I haven’t been able to find a clear answer. What does “create” mean in an RX context?
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Create means what the trading prices of debt imply for what the business would be worth after a restructuring
Biz has $100mm EBITDA and $300mm bonds
At face value the bonds imply a 3x EBITDA multiple
But if the bond is trading at $50, then you are “creating” the business at 1.5x EBITDA ($50 price on face value of $300mm debt means $150mm of value = 1.5x $100mm EBITDA)
Are creation multiples used mainly for fulcrum securities?
yea, this example assumes that you're equitizing your position after purchasing the debt. forgot to respond to you but posted a more detailed comment below for multiple tranches of debt and fulcrum scenario
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