Hi everyone:
Would you mind shedding some light on how to decide how much leverage a company can take please? For example, what are reasonable coverage and leverage ratios for a non-cyclical consumer durable business? What about for a cyclical, capital intensive business? How does one determine the different thresholds for different types of business? Thank you
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For Western Europe it is ballpark 5.0x plus/minus: - Smaller than 10/15m EBITDA (-1.0x) - Very cyclical/project based (-1.0x) - Low cash conversion (-0.5x/-1.0x) - Larger than 100m EBITDA (+1.0x)
US is +0.5/1.0x I believe. Equity cushion at least 30/40% up to 50% for smaller/low multiple
Please note I'm not in lev fin.
In my experience these numbers are pretty accurate. Theoretically it's also worth giving some thought to the marginal hurdle rate on investments vs marginal risk from leverage.
Simple: The bank or syndicate offering the loan will usually decide that for you.
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