Hi everyone,
I am not so familiar with the refinancing process and for the experts around here, I was wondering if you could help me answer these few questions:
Can the paydown of existing debt and new refinancing be of different amount?
How is the refinancing amount usually determined?
In the case of a recent M&A addon, can the refinancing be made on the overall business EBiTDA (organic + M&A)?
on the interest rate, how would you look at modelling the change of interest rate in the debt interest expense calculations?
would you have examples of refinancing models you could share?
I would really appreciate to get your views on these points.
Thank you!
Paydown of existing debt and new refi amounts can be different if the company wants to issue more debt (assuming its a Term loan or similar). The amount is determined by the company and its needs. Ex: I work with companies in the consumer space, so there were a ton of refis in 2021 to help with working capital as inventory grew.
For an M&A add on, it depends on the structure (target could remain as a restricted sub), but generally speaking the refi can be reflective of the newly combined entity.
Generally, each term loan, revolver, etc. has a pricing grid with a floating rate + a fixed rate based on leverage. So, it might be SOFR + 150bps if leverage is 2x-3x and SOFR + 250 bps if leverage is >3x. When modeling, we input this pricing grid and use the forward SOFR curve for the projection period
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