Is term loan amortization the same as a repayment? Is this amortization considered a cash outflow that would decrease the amount of cash available for debt repayment within the debt schedule? Or is this a non-cash expense that would be added to EBITDA? Does this amortization get added back to the CFS?
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Amortization is a partial repayment of the debt and is included in the debt expense. In the debt expense part of the payment goes to interest and some goes to the principle. The debt expense gets added back into Cash available for debt repayment. The Amortization gets added back into Ebitda.
So this amortization would also be added to the cash flow statement under operating cash flow? I'm confused because I thought d&a were added back for being non-cash expenses, but if you're paying back debt in the form of amortization wouldn't you be using cash for this and thus would not add this back to OCF? Is this the same amortization that is included on the income statement as amortization expense?
Actually I think I found my answer. Would mandatory amortization be included in cash flow from financing activities as a cash outflow? Therefore you can separate the difference between amortization from the income statement and amortization from debt. I'm still a bit confused as to how this would be added back to EBITDA as a non-cash expense though
Let me help clarify a few terms here.
Debt service = interest expense + scheduled amortization / mandatory repayment
On top of the mandatory / scheduled amortization, to the extent you have additional cash (let's not confuse this with the technical term of excess cash flow), you are either required to make additional prepayment (e.g. through ECF sweep) or prepay voluntarily, both at par.
By convention, lenders would use the word "prepay" to refer to any payments before maturity, and "repay" upon maturity. In practice, both refer to payments towards principal reduction.
With these, let's look at cash flow before debt service and debt repayment - two different concepts here:
CF before debt service is CF before both interest expense (capital cost) and scheduled amort / mandatory repayment
CF before debt repayment is CF before debt service minus interest expense but before scheduled amort / mandatory repayment
If there's non-cash component in your debt (e.g. PIK notes), you'd make non-cash add-backs accordingly.
wow what a nice answer huh
Thank you for the answer this did help clarify some of the components involved with my question. I appreciate it
No prob. Be happy to address any other questions you may have to the extent of my ability.
Also, scheduled debt repayment and amortization are used interchangeably. A 30 year amortization = a 30 year repayment.
Income statement amortization is the “depreciation” for your intangible assets. Completely different.
Your principal payments on debt, aka loan amortization, will be found in the financing activities as principal repayment or payments on debt.
And just to be clear, there are both amortizing loans and bullet loans (i.e. a balloon repayment upon maturity with no interim scheduled amort). Don't be surprised if you don't find any info re loan amort in public filings.
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