Two quick questions on LBOs. If a sponsor pays itself as a management fee in a portfolio company, is it treated as a tax-deductible expense or is it just a de facto dividend? Also, can you usually prepay subordinated notes (junior debt in general)? Just case stuff I wasn't sure about.
Thank you!
1) Yes - management fees are recognized on the income statement and can offset taxable income.
2) Generally yes, but for specifics always look to the credit agreement. Sub notes will almost always have some kind of prepayment premium attached that steps down over time. An example of this could be a hard non-call in year 1 (may see this as "NC 1"), 104 in year two, 102 in year three, 101 in year four, and par thereafter. Reason for this is sub note investors are more junior in the capital structure and as a result are taking more risk. The prepayment premium is one way for them to lock in a portion of their yield in case they get taken out through a refi for cheaper paper or some other event. FYI - these terms are purely illustrative and by no means an indication of current "market" prices. Terms would really depend on the business, deal/cap structure, and current market environment.
Id at maxime autem quia. Doloribus consequatur minus explicabo maxime sed inventore. Magnam aperiam voluptas animi explicabo. Veniam sed accusamus quaerat natus provident.
Nihil reiciendis est ut ex expedita reprehenderit et. Odio est rerum dolores aliquam sint. Exercitationem numquam expedita sit reprehenderit ut at veniam. Accusantium incidunt voluptates amet unde voluptate.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...