Hi,
I am trying to do an LBO where there is a 5 year exit but the terms for the TLB, RCF and senior notes are 7 years. How do you model this out, would you just ignore the bullet payment meant for year 7, in your 5 year debt schedule? or would total repayment be in year 5 instead?
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If change of ownership in year 5 then model repayment in year 5
The debt gets taken out 99% of the time in a change of control
what others said
longer explanation is that credit financing agreements usually have a clause stating that if there's a change of control, they must be repaid in full
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But you would still use the 7 years as the period to amort financing fees over , correct ?
Correct
As others have said, it amortizes based on its 7-year schedule, but in the event of an exit, the remaining principal balance at that time is repaid in full.
1) Use the 7 year term to amortize the financing fees
2) Model the debt payback normally, as if it was a 7 year loan
3) Repay all debt on the sale of the company
What happens to the 2 years of remaining unamortized financing fees? All recognized on P&L during change of control?
How is the amort of financing fees then treated in the three statement model, would it affect FCFF?
You can capitalize the financing the on the balance sheet, then amortize it.
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