Credit technical questions - advice appreciated
Season's greetings Folks!
Am working through the hols but I ain't complaining cause we're looking at a pretty interesting acquisition - only thing is, we need to raise leverage this time and I'm fairly new to this topic. Sharing a couple of questions below, if anyone could speak to these it would be great!
How is non-cash interest treated in the 3 financial statements?
How is bank debt typically amortized? i.e. same principal amount amortized each year or does principal payment increase year-on-year such that total debt service (principal + interest) remains same every year?
What is the usual base lending rate used? (if anyone can speak about Asia that would be great)
What are typical hedging costs (ballpark numbers would be great) for leveraged loans?
Is it normal of banks to request mandatory prepayments of loans upon future equity raises? Seems to me that lenders would be better off then, given the higher equity cushion, hence not sure why they'd require a prepayment of their loan
Is it reasonable to expect senior creditors to allow refinancing / early repayment of more junior debt before the senior debt matures? From our (borrower) perspective, the junior debt is more expensive and we'd like to refinance it / pay down when possible
We will have a revolver in place, and given the underlying target's seasonal cashflow, can a revolver be used to pay interest or principal payments of a term loan during certain seasons of the year if needed?
If you have quarterly working capital figures, how do you "annualize" it?
Thanks in advance guys! and SB's for good answers
In lieu of SBs, I can answer these questions and more for the low low price of .5% of the purchase price with a $45,000 retainer and expense cap of $30,000
Lol that my man, is too steep a price for my wallet. May I counter with this: one silver banana?
1) Non cash interest is PIK, where the debit is "Interest Expense - PIK", with credit to "Debt". This shows up on IS as interest expense and added back to NI as PIK Interest (non-cash expense).
2)Completely variable on the type of debt utilized and which bank/group you use as well as size of debt. Can be 0 amort with full balloon in 5, or standard 2/3/4/5/Remainder%, really up to bank/buyer to negotiate. While banks like amort, at the end of the day they make money when it is "sitting out there" so not a-typical to see slow amort schedules.
3) Cannot speak to Asia, In USA typical is L+___%. I left blank as this is highly dependent on what type of debt you use. (Senior/Mezz/etc).
4) Confused by question/maybe not reading right.
5) Yes - I see as common, but can be negotiated on circumstances. If things are tight and you need new capital inhjection, they are all for it. If it is more of a selling transaction, then the bank will need to evaluate on a cas-by-case basis.
6) Cant speak on this as I have not spent time on the debt side. My hunch would be yes, given your rational.
7) Depends on the credit agreement. At the end of the day - anything is possible if negoitaited. I have some where this is allowed with penalty, and others where this is not allowed.
Hope this helped
Thanks mate, SB'd -
Anyone else care to add on?
Item 1. PIK interest is not added back to NI. It is added to the debt on the BS and an expense in your IS. In Cash Flow it will be a positive as it indeed is non-cash.
Item 3. For US$ demonited debt it will be Libor
Item 4. Heding intrest or FX exposure?
Item 6. Only if leverage is reduced significantly. Basically owner could also pay himself a dividend.
Item 7. It's hard to track where every dollar goes ofcourse, they are not marked like $100 bills :) If you first pay your interest with cash on the bank and than pay your suppliers with revolver, was the interest in that case paid with cash or the revolver...
Item 8. You don't annualize balance sheet items.
Thanks mate! Sb'd
For item 4 I'm looking to understand both.
For item 8 would you mind elaborating? E.g. If you know quarterly change in WC is $100, would you assume annual change in WC is similar? Or would you calculate receivable days, payable days etc based on the quarterly data and use that to calculate annual accounts receivables, payables, etc
Bump
I have experience in LevFin, i believe most of the questions already have been answered. What else would you like to know, or for which question would you like to get more detailed information?
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