Found this question when searching for difficult technicals. If you were to do a DCF for a firm and calculated the enterprise value at $200, and the net debt on the firm's balance sheet exceeded that (say $400), would the equity just be worth $0?
The second part of the question was "How much would you pay for different tranches of debt" and "What % of par is the debt trading at?".
I believe for the first question, you would simply pay out in order of senior secured debt holders down to unsecured, subordinated and mezzanine until you had nothing left to pay out. I'm not sure how you'd answer the second question. Any thoughts?
That's correct - unless for the junior tranches you had some reason to believe they could secure some of the value, e.g., firm is recapitalized and junior debt holders become the equity holders.
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