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.
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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).
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