Sponsors LBO Accounting Modeling Question
Hey guys need to get a model out tonight so I need your help. Appreciate it in advance! For a model:
If a company is being bought why is preferred stock treated like debt and bought out at book value? Shouldn't the purchase price of equity also include buying out the preferred stock? From the models I've seen purchase price only includes common stock.
Should I capitalize/amortize these costs or directly expense them?
- Call penalty to recall all existing bonds? (i.e. $5 million on a 105 call premium) - Discount taken when issuing new bonds (i.e. 99 OID on $100 million)? - Advisory fees and general fees are expensed? - Debt financing fee is capitalized and amortized?
I'm a little confused on your scenario but, for an LBO because of a change in cap structure your equities will be weighted differently. Treating the pref stock as debt will allow it to be bumped down to a liability off of the balance sheet. Buying it a par is akin to the sell price of any other capex. And what you said below is correct because of that all related costs to the liability are capital expenditures and can be amortized. For discrepancy in purchase price check minority interest, intangibles, maybe even goodwill or other for their calculations.
Call penalty would be could be capitalized, any advisory or other fees are ALWAYS expensed (there's no intrinsic value). New bond issuance is expensed. I have a model I built for XM post merger w/ Sirius that has all of that modeled out if you need it.
Hope any of that helps.
Porro recusandae inventore ratione occaecati sit. Pariatur distinctio ut repudiandae quasi eum. Quia rerum eaque nulla.
Soluta necessitatibus eum fugiat beatae assumenda et. Porro sunt voluptas nulla animi natus illum. At nulla eligendi voluptatem nihil labore. Consequuntur odio atque fugit sed laborum architecto consequatur est.
At quidem dolor vero. Nam fugit et molestias. Accusamus sed facilis impedit veniam voluptatem illum. Nobis qui odit labore in perspiciatis necessitatibus et.
Facere qui recusandae est vitae cumque maxime. Eaque quia id nesciunt architecto deleniti rerum. Vero delectus eum et unde.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...