Rescue Financing Modeling
With the energy industry in free fall in recent month, many heavily leveraged energy companies are in danger of breaking loan covenants and potentially being forced into bankruptcy, even though they are solvent in the longer term. One possible investment instrument/vehicle to take advantage of these opportunities is rescue financing, which usually involves a cash injection into a company in return for an equity stake and/or warrants. I've been looking into a few companies where this might make sense but I was wondering how would you go about modeling this type of instrument from a buy-side perspective. Any sample pitches or primers would be appreciated as well.
Just model the instruments/cash flows the same way you would in any transaction...I'm not sure why you think a [secured loan/unsecured loan/convertible bond/preferred share/equity offering/insert other instrument here] would be any different for a stressed company than a healthy one, at least from a modelling standpoint. Obviously you want to keep a close eye on liquidity and credit metrics in your model, but the instruments themselves work the same.
Check out Oro Negro.
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