To what extent can companies lever themselves these days? Lets say there's a company with 20M in assets, 0 debt, 3M EBITDA.
Whats a reasonable assumption for how much this company can be levered up, assuming the debt will not impact EBITDA positively/negatively.
I'm thinking a Sr Secured Term Loan against the 20M in assets... but not sure what the market can stomach.
| +203 | Return Rates For Interns Are Falling? | 83 | 2h |
| +128 | UBS Americas IB: The Kids’ Table of Wall Street | 16 | 1d |
| +102 | I am a drunk MD AMA | 38 | 4h |
| +76 | London IB BB is a challenge | 41 | 22h |
| +75 | KISSED MY VP… HELP!!! | 14 | 9h |
| +63 | VP Lifestyle at Top BB Coverage Groups | 40 | 12h |
| +57 | An Outsider’s View of RX Banking Out of College | 6 | 3d |
| +49 | SharePoint makes IB hours HELL | 15 | 3d |
| +48 | UBS Offer Day | 18 | 10h |
| +44 | momentum of Rx groups | 16 | 17h |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
It depends how you defined levered. We use Total Debt/EBITDA to define leverage. In the above example, probably up to 15MM Unsecured.
interesting
How about in relation to assets. Reason being... the hypothetical company has no EBITDA. It's a start-up, the assets will either be entirely funded with equity, the company will then borrow to return some money to equity investors... or the equity portion will be maybe 8M-10M, and the assets will be financed by a 10M Term Loan + the equity investment.
I know the absence of any historic performance drastically changes things, but the revenue is entirely generated from subsidized government contracts purchasing 100% of output.
You may be able to get 3-4x EBITDA on the Term Loan and then an ABL revolver on the collatoral base that's subject to availability (80% of AR, etc.).
When you go secured (by inventory, A/R, FA, etc) you may be able to get 50% of Total Assets in debt. Generally when that does happen though, a firm will have little operating flexibility due to covenant requirements, especially a small firm in this market
I can tell you from the LBO side you wont get more than 3.5x for companies with EBITDA in excess of $20m and a nice asset base. The senior will have the most aggressive amortization profiles and cash sweeps. this 3.5x will be 2.0-2.5x of senior and 1.0-1.5x of mezz.. i haven't seen a bank lend over 2.5x in a while but i have seen 3.0x of senior secured mezz like instruments...
80% LTV is what I have recently seen for a niche real estate deal in UK (obviously not your typical office building where they are expecting further falls in value).
Et distinctio sint officiis quia. Quo temporibus quibusdam odit error veritatis saepe tempore molestiae. Enim enim fuga quisquam at. Quam consectetur qui assumenda natus et sit. Et ratione voluptatem eligendi rem molestiae autem ea.
Error molestiae maiores nam sed accusantium ex asperiores veniam. At ut velit qui soluta nostrum explicabo aut. Libero dignissimos ullam dolores magni. Dolorum vel praesentium voluptates rerum.
Et accusamus eos optio accusantium. Maiores repudiandae optio non quas quos error dolores. Corrupti architecto velit dolores ut magni ducimus. Earum quam autem consequuntur et est eos. Id assumenda ipsam reiciendis error. Aspernatur accusamus nostrum expedita eaque harum eius.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...