LBO debt related quiz questions needing answers

Alright, I'll try and offer you some help, though next time might be better if you provide us some context for why you're asking these questions instead of copy and pasting a homework assignment or something and expecting help...

With that said, these questions are terrible. I assume you this is a multiple answer quiz because different answers could be true in different situations.

wallstreet12345

Which of the following statements are TRUE regarding the similarities and differences
between Senior Notes and Subordinated Notes?
a. Both Senior Notes and Subordinated Notes are preferred by conservative
investors such as commercial banks.
b. Both Senior Notes and Subordinated Notes are preferred by more aggressive,
higher risk-tolerance investors such as hedge funds and merchant banks.
c. Senior Notes and Subordinated Notes both offer call protection and incurrence
covenants.
d. Neither Subordinated Notes nor Senior Notes are ever secured by collateral.

A is not necessarily true. Most commercial banks probably would not be comfortable with sub notes. As for B, that depends on whether you're acquiring on the secondary market (already issued) or if you're the primary issuer. If you're the primary, then senior notes probably aren't that attractive. However, if the company is distressed then yes, both senior and subordinated notes could be an attractive investment. C is true, for the most part. D is clearly wrong as senior and sub notes could be secured.

wallstreet12345

5. Which of the following statements are TRUE regarding the similarities and differences
between Mezzanine and Term Loans?
a. Both Mezzanine and Term Loans offer Payment-in-Kind (“PIK”) interest
payments rather than cash-only interest payments.
b. Mezzanine has a longer tenor (maturity period) than Term Loans (and most
other types of debt).
c. Certain types of Mezzanine allow for the amortization of principal as well as
optional prepayments, similar to Term Loans.
d. Mezzanine sometimes offers stock options or warrants to investors, whereas
Term Loans offer no equity participation to investors.

A is not true, as most term loans are cash only. B is true (since term loans are senior to mezz, why would a senior lender agree to have someone junior be paid out right before them?). C usually there is not amort because any excess cash available would go to the term loans (again, because they are senior). However, some mezz will allow for amort, especially in cases where the company's future is uncertain and the mezz lender is looking to reduce their risk. As for D, it's true that mezz will almost always take equity in the company, whereas term loans typically don't take any equity. I'm not sure if there's anything preventing a term loan lender from negotiating equity as well though, just not that common. So based on the above, B, C, and D could all be true.

wallstreet12345

6. Which of the following are examples of covenants that you might see for Term Loans,
but NOT for Subordinated Notes?
a. Total Debt / EBITDA may not exceed 5.0x.
b. The proceeds from any assets sold must be re-invested in the business or used
to pay off debt.
c. (EBITDA – CapEx) / Interest Expense cannot fall below 2.0x.
d. The company cannot raise more than $2 billion worth of total deb

A could be seen in both. B could be seen in both. C could be seen in both. And finally, D could be seen in both...

wallstreet12345

Which of the following statements are TRUE regarding the similarities and differences
between a Revolver and Senior Notes?
a. Senior Notes can be used for short-term, “as-needed” borrowing when banks
are unable to offer a Revolving Credit Facility.
b. In most cases, the Revolver has a longer tenor (maturity) than Senior Notes.
c. The interest on Revolvers is tied to LIBOR, or another floating interest rate
metric, whereas Senior Notes generally have fixed interest rates.
d. The interest on a Revolver is always paid in cash, but with Senior Notes the
interest may be either cash or PIK (Paid-in-Kind).
e. Early prepayments are allowed for Revolvers, but NOT for Senior Notes.
f. Neither Senior Notes nor Revolvers offer principal amortization.

A is not true. It's usually revolver that is used for the "as-needed" borrowing. B is not true, revolvers are usually paid off first. C is mostly true. Revolvers are indeed generally tied to LIBOR while senior notes generally have a fixed rate, though not always. D is also generally true, though it would be pretty uncommon to have a senior note that is PIK, it's usually sub notes. E is a strange answer, as there really isn't such a thing as an early prepayment of a revolver. And as for senior notes, you can generally pay them back early, depending on your indenture. As for F, again, principal amort isn't really a thing for revolvers. You just pay them back as you can.

wallstreet12345

3. Which of the following statements are TRUE regarding the differences between Term
Loans and Subordinated Notes?
a. Term Loans have fixed interest rates, whereas Subordinated Notes have floating
interest rates tied to LIBOR (or equivalent interest rate metric).
b. Term Loans have floating interest rates tied to LIBOR (or equivalent interest rate
metric), whereas Subordinated Notes have fixed interest rates.
c. Subordinated Notes are below Term Loans in terms of seniority and therefore
offer higher interest rates.
d. Certain Term Loans amortize and allow prepay

A is wrong because term loans are generally floating. B is generally true. C is true for sure. D is true as well.