Hello All,
Does anyone have any insight as to what would be required in a restructuring associate modeling test? I don't think a LBO makes much sense but unsure how to prepare
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If they're going to have you build a recap model, an LBO model is going to get you pretty close. The difference is that you'll probably spend more time on the debt debt schedule than the operating model (as you'd expect). Just like an LBO model, you'll have your usual build to unlevered FCF then a debt schedule that feeds your cash interest and mandatory amortization back to levered FCF then a revolver which feeds off of levered FCF, and min cash. Ultimately, this will get you to a net change in cash.
The difference between the recap and the LBO model will be the transaction modeling which is honestly pretty straightforward once you have the LBO piece. Be comfortable with adding in functionality for new tranches of debt and equitization of existing tranches (% haircut, % participation, fees).
It's possible (but I personally think unlikely), that they ask you to build a full bankruptcy model which will require toggles on each tranche of debt for paying and accruing interest while the Company is in Chapter 11. Then the emergence from bankruptcy sort of functions like an exchange. I'd take a look at some of the wallstreet prep resources to get a full explanation (only after you're comfortable with the recap).
It should go without saying that you'll want to also have a good output tab that has the key summary statistics (EBITDA, ULFCF, LFCF, available liquidity, leverage) as well as some sources and uses for any transactions that you're modeling.
Thank you for this. For the recap model, essentially I need to be able to have a certain cap stack modeled into the forecast then a few years down the road have a new debt stack introduced and potentially a debt to equity swap? Or is this getting too detailed for a 1 hour test
That's right, so you've got your LBO model that has your current debt schedule. Each tranche of debt will have the usual principal balance rollforward (BOP Face Amount +/- PIK/Mandatory Amortization (if applicable) = EOP Face Amount). You'll just add a line subtracting debt exchanged which feeds off of participation. If you're modeling a debt exchange rather than equitization, you'll have a new tranche of debt that has a line for something like "new debt issued" or "new debt exchanged" which feeds off of participation and haircut.
As you suggested, if this is just a one hour test, there's only so much they can ask you to do, so I'd just be comfortable building out the debt schedule and then maybe adding a new tranche of debt.
was told they make you do LBO models because if you can do an LBO model you can do what they’ll need you to do on the job.
for rx advisory? the likes of roths, gugg, ghl, glc, hl?
If you (or someone you know) happens to have access to the Wall Street Prep premium package, which has a tab of "free courses", there are 2 such free courses on restructuring that are short (3 hr, and 1 hour) and useful, including some template downloads with cap tables, priority waterfall, cash flow and debt balances, etc. May be helpful to you. Good luck!
they may ask questions but aren't going to ask you to build a model. best to understand how it works and levers.
it's a modeling test. a few rounds into the process
Mind if I PM you? Out of PMs atm but will shoot one tomorrowz
sure
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