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As with most questions regarding debt and debt ratio, it depends on the company. A company with high degree of recurring revenue, sticky customers and/or long contracts will have the capability to lever up far more than a one-trick pony from Silicon Valley.
As a rule of thumb though, anything above 5xEBITDA is usually considered too much from the bank's perspective, which means you would have to find other (more expensive) sources of funding.
And yup, saw some HY stuff at yields below 1% at pricing. It's nuts to think that it is the case when my bank gives me 1.3% on my cash...
Euribor (E+xxxbps) is currently below 0 - its the equivalent of Libor here. So we use a 0% floor.
Just to fill in the last missing piece; Spoke to a friend of mine in Geneva. He's saying senior debt seems to be in the 1.x%s.
With a 3M CHF LIBOR at -0.7%+150-250bp I don't think that sounds too unreasonable.
Honestly, I don't think a lot of banks will make it through this economic cycle. To expand on what Pan European Monkey said, European banks are in a peculiar situation these days. They give me 1% to store my savings in there but lend it out to nominal negative rates. In essence, they are giving out money for the opportunity to lose more money. It's the same with government bonds - the banks buy government bonds for 100EUR today, in order to get 95EUR back tomorrow which has never happened in modern financial history.
Over the long term, this is not sustainable, but I have no clue how they are going to solve it. I guess there are a few possibilities:
(1) The ECB gives up fighting inflation and increases key interest rates regardless: This will increase yields in the entire bond market, but will push a number of countries into disflation (or deflation) combined with stagnation. In my mind it's an unlikely scenario, as this would force a number of European countries into technical default. Greece, Italy and Spain can't afford their loans to go up in real terms and without any possibility of devaluing their currency they are tied to the mast of a sinking EUR-ship.
(2) Status quo, aka ECB keeping the pedal to the metal to battle low inflation: Banks continue to lend out money with negative real interest rates until they go bust one after the other, either as a result of rotten loans or as a consequence of continous negative margins. Even the worst companies get refinancing of their bonds today and it will eventually come to an end.
(3) Banks stop lending out money: Economic growth stalls and the countries that would be affected by ECB’s interest hikes will have to deal with an increasing number of unemployed people combined with lower tax income instead.
Like I said, this could go down in a number of ways, but I don't think that it will be a soft landing for Europe. If could happen anytime, a week, a month, a year from now, but sooner or later the music will stop. Or as John Tuld said it I'm here for one reason and one reason alone. I'm here to guess what the music might do a week, a month, a year from now. That's it. Nothing more. And standing here tonight, I'm afraid that I don't hear - a - thing. Just... silence.
$10MM EBITDA we won't go over 3x Senior Funded Debt/EBITDA and 4x Total Funded Debt. FCCR is usually between 1.10x-1.25x
'>$60MM EBITDA we will go up to 5x Senior Funded and 6x Total Funded Debt. FCCR likely 1.10x-1.15x.
In general, the larger the Company's revenue/EBITDA, the more comfortable we are lending at the higher leverage ranges. As others mentioned, industry matters a lot.
PE firms are usually pretty good at negotiating add-backs to EBITDA in the Credit Agreement which helps the ratios.