LBO Debt Cost / Benchmark Rates
Afternoon all,
What rates are people using these days for LBO debt cost? Assume 500-600bps spread above benchmark.
Are people pulling the (3mth?) forward curves for SOFR/EURIBOR/SONIA which would give you an all in (pre-tax) Kd of say 10% in 2023 falling to 8% in 2025, i.e. a different cost of debt in each LBO forecast period? Or are people pulling the 5yr swap rate (currently 3.6% for SOFR so 8-9% cost all in) and holding that constant through the LBO? As I understand it sponsors haven't historically hedged the acquisition debt although appreciate that may change now...
Appreciate any insights from LevFin bankers and whether any difference between US/EU/UK
Thanks!
It’s literally the same as before…use the 3 month forward curve.
From a hedging perspective - depends on who is involved in the arranger group, etc. If the arranger group includes banks with a cash management/TPS group then the Company may have hedging in place. On the other hand, if this was a club deal with several direct lenders then there is most likely no hedge in place.
U.S. 1M Term S + 450 - 550. Not usually implementing a hedge at this time given expectations for ‘23/‘24 rate movements.
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