Makewhole has it. If you want to think about it -- there are two factors at play here: Assets (in this case, don't think of it as B/S assets but the future value of the earning power of those assets; i.e., EV) and absolute priority of the liabilities. Assets have to equal liabilities. So we know assets=EV=$800 and thus liabilities=$800. Bank debt, which we'll assume is secured, gets paid off before the high yield debt, which we'll assume is unsecured.

Jan 01, 2013

answered thx!

answered thx!!

3 Comments

arguewithatree

13y

Could be wrong but doesn't it depend on whether the PE firm assumes the debt or pays off the debt?

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Makewhole

13y

EV is $800 so the debt has to be worth not more than that. If you think about seniority, the HY debt would take the haircut here. So $400 for bank and $400 for HY.

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mrb87

13y

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