NAV Financing Case Study

Based on the most helpful WSO content, here are some insights for your NAV Financing case study:

Credit Analyses to Include:

1. Asset-Level LBO Analysis:

   • Evaluate the leverage, growth, and profitability of the underlying assets.
   • Assess the free cash flows and their predictability.
   • Consider the purchase multiples and exit strategies.

2. Fund NAV Loan Waterfall:

   • Analyze the distribution of returns and the impact of different scenarios on the waterfall structure.
   • Consider the implications of different financing instruments (e.g., PIK, equity syndication).

3. Industry and Company Operations:

   • Use Porter's Five Forces to evaluate industry dynamics.
   • Assess the company's operational metrics such as price/volume growth, cost structure, and ROIC.

4. Financial Health and Strategic Initiatives:

   • Review the company's financial statements, focusing on capex, working capital, and projected financials.
   • Evaluate any strategic initiatives, such as non-core business lines or potential asset disposals.

Sensitivities to Add:

1. Purchase Price:

   • Run scenarios with varying purchase prices to see the impact on IRR and overall returns.

2. Exit Cap Rate:

   • Analyze how changes in the exit cap rate affect the valuation and returns.

3. Rent Growth and Market Rents:

   • Consider different growth rates for rents and market conditions.

4. Hold Period:

   • Evaluate the impact of different hold periods on the investment's performance.

5. Waterfall Structure:

   • Modify the waterfall structure to protect downside risk and assess the trade-offs in upside potential.

6. Refinancing Scenarios:

   • Include scenarios where the fund refinances mid-hold to see the impact on NOI and overall returns.

7. Interest Rate Sensitivity:

   • Assess how changes in interest rates (e.g., LIBOR) affect the cost of capital and returns.

8. Credit Risk:

   • Evaluate the credit risk associated with the sponsor's underlying equity strategy and its impact on the loan.

Additional Considerations:

• Unit Economics: For specific industries, model unit economics to understand the progression of costs and revenues.
• SWOT Analysis: Conduct a SWOT analysis to identify strengths, weaknesses, opportunities, and threats.
• Management Incentive Plan (MIP): Propose a reasonable MIP that aligns management's interests with those of the investors.

By incorporating these elements, you can create a comprehensive and standout case study for your NAV Financing business. Good luck!

Sources: Sensitivities......, Private Credit Resources and Prep, Creating own LBO assumptions, Credit Fund to PE: Is it Doable, Private Equity Recruiting Process (From Banking)