Secondaries Modelling Question (GP/LP - led)

For GP-led secondaries deals, the debt structure and modeling approach differ from LP-led deals. Here's a breakdown based on the most helpful WSO content:

GP-Led Secondaries:

1. Debt in GP-Led Deals:

   • When the GP raises money for a continuation vehicle (CV), they often structure the deal with new debt. This is similar to the initial acquisition process.
   • The new debt is typically raised at the CV level, and the terms depend on the quality of the underlying assets, the GP's track record, and the market environment.
   • The debt raised is used to partially fund the purchase of the assets being rolled into the CV, with the remaining funding coming from equity raised from new and existing LPs.

2. Key Considerations:

   • The debt terms (e.g., leverage levels, interest rates, covenants) are negotiated based on the projected cash flows and risk profile of the assets.
   • The GP may also use preferred equity or other structured financing tools to optimize the capital structure.

LP-Led Secondaries:

1. Start Date for Mini LBOs:

   • For LP-led deals, the start date of the mini LBO depends on the purpose of the analysis:
     • If you're analyzing the historical performance of the asset, you would model the LBO from the GP's initial entry (e.g., 2019 in your example).
     • If you're projecting future returns or valuing the asset as of the reference date (e.g., 2025), you would start the mini LBO from the reference date.
   • Typically, for secondaries transactions, the focus is on the reference date (2025 in your example) since the buyer is acquiring the LP stake at that point in time.

2. Key Considerations:

   • The valuation and cash flow projections should reflect the current state of the asset and its future potential, rather than solely relying on historical performance.
   • Adjustments may be needed to account for any distributions, capital calls, or changes in the asset's financial profile since the GP's initial entry.

By focusing on these nuances, you can tailor your modeling approach to the specific type of secondaries deal you're analyzing.

Sources: https://www.wallstreetoasis.com/forum/real-estate/starting-your-own-shop-lp-debt-fund-vs-gp-dev-co-value-add?customgpt=1, Q&A: PE Secondaries Principal, Private Credit Secondaries Case Study Insight, How do all the smaller GPs handle the funding to closing process?, Sources and Uses statement - private LBO model