How do you come up with sensible financing assumptions during interviews?
Is there a best way of coming up with debt financing assumptions (leverage, junior/senior split, cost of debt, etc.) to use in an LBO? Should I be prepared to talk about how this might differ between industries, size of company, geography, or is it enough to just have roughly [ ]x EBITDA at [ ]% for whatever model I build?
I feel kind of stupid for not knowing this after two years at a BB but we've always just asked LevFin for inputs and plugged them into our model without any thought. Now that I'm preparing for interviews and looking back at their assumptions, I can't really see why they've used those numbers, or the market has changed so much that I doubt they're realistic anymore.
Thanks in advance
Definitely a tougher market now to price debt, but personally would always look at the terms in other deals I worked on / knew of as comps. To the extent you can reach out to a junior contact in your lev fin group informally, I wouldn't hesitate to just ask for a view on current pricing for xyz industry / package size / structure. Had plenty of friends in b-school reach out to me for debt terms on my deals for their interview / case study prep as well.
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