PLEASE HELP - Financing Fees in S&U
I'm confused by when financing fees are actually paid out in a LBO.
Shouldn't there be a cash outflow on the cash flow statement when the transaction closes to represent this? I'm confused when the expense is actually accounted for if we have amortization on the P&L but then add it back on the CFS because it's not a cash expense
Anyone have any thoughts?
I got you. I can answer the financing fees part - for me that's a wide-open lay-up. Someone else help w/ IS/SOCF question.
1) Financing Fees aka Underwriting Fees -say for a B/B2 Regular-way LBO--Revolver / First-Lien Term Loan B: 2.00% and Second-Lien Term Loan B: 2.50% a) when are they paid? paid at closing & funding of transaction (aka in the credit agreement-->cover page-->look for date at the top). b) "Flow of Funds Memo" - These fees will be outlined via a document called a "Flow of Funds Memo" - it's basically an excel doc w/ the different parties & their banks account # & routing numbers - to organize for back office where all of the $$ flying in different directions is going. It's an official/necessary document to closing/funding. Details below 1) Financing Fees (aka Underwriting Fees) a) paid at closing/funding of transaction - look for the date on credit agreement cover page. Outlined via "Flow of Funds Memo" 2) OID Fees - make sure you distinguish here b/c these have a "4-year average life" convention - fees are amortized over 4-years. 3) "Upfront Fees" - same rule w/ OID Fees - 4yr avg life, but sometimes the Revolver's "OID" is called an "Upfront Fee". a) Example: 99.0 OID = 100 /4 = 25 bps -FAS-91 accounting rule covers this. I didn't do the FAS-91 memos at my bank, and the other analysts, even after always asking to teach me, never did, so feel free to correct me there
Someone else can finish the IS / SOCF part, altho I'd have a decent idea at it, but I need more info, such as 1) Date ending - IS/SOCF 2) Date of Closing & Funding of LBO transaction
You're the goat, thanks so much.
If it helps, can assume transaction close / funding of 6/30/2020 and FYE 6/30 for all statements. My question is just high level, do the financing fees actually flow through the target's P&L / SOCF when paid out? I've only seen it as amortize on P&L / add back on SOCF as non-cash but want to make sure I understand why it's not an initial cash outflow when the funds are actually paid.
ughhh you’re gonna make me get out my computer and check examples from models. note I’m going to answer this based on looking at a couple examples to see - not from say my knowledge of I don’t really do modeling
also it’s a longshot but I might even have deal site access to this specific deal lol if u wanna share.
make sure u aren’t confusing this with amortization of intangibles. this happens a lot when ppl ask these questions for the 1st time
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