Revolver Commitment versus EBITDA multiple
Recently saw a case study where the EBITDA multiple on the revolver was .5x LTM EBITDA, the commitment was $500 and the LTM EBITDA was $500. I would've assumed the ebitda multiple refered to the same thing as commitment - can anyone shed light on why there would be this difference and what it means?
How about this logic: Revolver = max (commitment, 0.5x LTM EBITDA)
Good luck,
Tamara
Thanks!
Not saying its not done, but I've never heard of a cash flow revolver that flexes in size as described here. ABL availability can.
My interpretation is the revolver size is $500M, and that the model should assume 0.5x LTM EBITDA is funded in sources of capital to fund the buyout, ie, increasing funded leverage / decreasing equity invested.
That would be my assumption too. Borrowing bases are more of an ABL than a cash flow revolver feature.
Sorry for the simple question but what is ABL?
Asset Based Loan. Availability under the loan is limited by the value of AR, inventory and potentially other assets.
Yes, would be very odd to have a revolver in an LBO which essentially has an EBITDA grower basket linked to it. It would be difficult for the RCF lenders to book the committed debt (which would fluctuate, what, quarterly?). You occasionally see situations where a hollow tranche is built in for an additional RCF (or some other form of undrawn committed debt like a CapEx Facility) which is triggered by some milestone (e.g. an acquisition, surpassing X EBITDA etc).
More likely the case example wasn’t using precise terminology as another poster alluded to. RCFs on LBOs are usually set at one turn of EBITDA. The undrawn commitment is the amount of available RCF for drawing. Total Commitments is the sum of undrawn and drawn RCF.
Depends on how question is worded but my guess is 0.5x is drawn at close of the total 1x committed i.e. remaining 0.5x is undrawn and can be used in the future
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