What's too much leverage?
I'm trying to look at a cap structure. I'm wondering how much is too much leverage? Please help. my boss is on my back.
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This can't be answered without nuanced information about the company you're evaluating.
Interest to EBITDA?
No such thing
What's 'too much money'? Stop asking such silly questions.
One million dollars.............One BILLION dollars!
If you're talking legally, the Fed instituted guidelines in 2013 that basically set a leverage cap at 6.0X EBITDA (for LBOs) without facing a lot of additional scrutiny. However, my understanding is that it's not exactly a cap since it restricts how much can be lent by certain kinds of institutions, but if some mezzanine fund wants to lend a bunch of additional money they can. If what you are asking is how much can this company handle these guys are right, it's a question that can't be answered without a lot more context.
I am inevitable.
I am iron ... bank
Your boss is on your back? This is firmly in boss decision territory, he should be providing a view on appropriate leverage. Assuming you're not trolling the answer is it totally depends on the firm and industry.
Too much leverage is leverage that causes you to either violate a covenant or more importantly run out of cash either via: missing a payment on your debt or being unable to refinance debt as it matures. Effectively in the real world running out of cash = bankruptcy.
It depends on your industry and will be largely driven by how much free cash flow the company generates and how predictable those cash flows are. It's why a software as a subscription (saas) company could easily lever up to 7 x ebitda (very sticky revenue model , little required capex once you've gotten a bunch of customers) whereas a pipeline services company would be foolish to lever up beyond 3x debt to ebitda.(revenue prone to project delays, significant capex, commodity price exposure)
As a very general and over simplified rule leverage will be measured as debt to ebitda and most companies should be under 4x and most try to stay under 3x. Exceptions are usually sponsors trying to juice returns or like our saas example a function of the industry or company. Also as a general rule lenders do not want to lend more than roughly 2/3 of the estimated enterprise value of the firm as they will want a cushion of equity behind them in the capital structure. So for example if a business is worth 6x ebitda, a lender would be hesitant to lend above 4x.
50x on stat arb plays didn't pan out too well.
Depends on the industry. Look at avg. leverage (Debt/EBITDA and Net Debt/EBITDA) of its competitors in its industry or could be names in the same sector with a similar rating.
In general, the threshold for Investment Grade would be ~2.5x gross leverage. Though there's exceptions and i'm ballparking. If you have Bloomberg you can look at what Moody's/S&P sets the leverage cap at for covenants of a similarly rated company before triggering a downgrade.
Someone mentioned FCFF, use that to get a sense for they're ability to pay off existing debts and service additional leverage. Use Debt/FCF for comps as a reference. Also, you should be more specific when you ask questions, you're begging to get trolled.
Cash flow leverage? Balance sheet leverage? Asset based deal or traditional cash flow deal? Industry? Guarantor strength, if any? totally depends.
Take fixed charge coverage of 1x and back into an implied debt quantum.
This is the answer I was going to write.
A few questions to consider: - Is the deal secured or unsecured? if secured, is there a collateral airball? If Y, maybe an ECF recapture feature makes sense for a year(s) until airball eliminated. - back into total debt figure (could be mix of term A/B and RC) based on a non-fractional fixed charge coverage ratio.
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