Finding the maximum debt for a LBO Deal
Hi everyone, so, I’m preparing for an interview as a PE intern. I’ve worked on many LBO models where I already had the leverage multiple to find the maximum debt. But how do we get that leverage multiple ?
Can someone help me understand how à PE firm decides on the max equity and the max leverage for a deal?
Thank you in advance for your help.
Look at debt comps / other similar companies cap stacks
Make sure that you don't default and have okay headroom on your covenants in a relatively realistic downside scenario.
Basically just however much money lenders will give you at decent terms
1) Lever up
2) Bro down
3) ....
4) Profit
Make some assumptions for interest rate and repayment schedule (based on market comps) and then look at the maximum level of debt that still allows the company to service the debt and not breach its covenants (e.g., DSCR > 1.2x in any given year)
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