Hi guys,
I am currently working on a case study for a boutique private equity position and I have to model a deal. I have challenges on the the debt side of the model and would love any help.
The debt is a five year interest-only loan at LIBOR + 350 spread with 1.5% in and out.
3 questions:
1. What does 1.5% in and out mean?
2. I am currently using the 3-month LIBOR as I read in this forum that it's the most used LIBOR. Am I correct?
3. How should I go about projecting the interest % in the future? Should I use future LIBOR rates?
Thanks.
Agree on #2 and #3 --> 3 month LIBOR and use a forward LIBOR curve.
Random question, and not to drill into this, but are they telling you it is L+350 bps? That's extremely cheap paper / I haven't seen many revolvers at that rate unless it's a large PE backed deal... the reason I ask is because you stated it's for a boutique PE shop. Unless they somehow have an amazing relationship with some bank out there, L+350 bps on term debt seems tight given the size of the companies they likely look at.
I'm not sure what 1.5% in and out means either, but assume it's 1.5 pts on OID.
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