Tricky Transaction fees LBO
I see some models that just have transaction fee (% of EV) + OID. Some have transaction fee, financing fee (% of debt raised for transaction) and no OID
What is the correct way, is OID = Financing fee ??
Imagine you raise €100m of term loan and pay 1% fee - you have a financing fee (to the banks) of €1m
The financing is then priced at 3.00% coupon, but issued at a price of 99 (so 1% OID) - so in practice you will only get €99m of debt, and you had €1m of OID (which is given to the credit guys buying your debt)
Total financing cost is €1m fee + €1m OID = €2m. OID can be seen as a type of fee
In most cases the fees paid to banks in a LBO is through the financing fees so it would be correct to consider that as the method to model in fees in an LBO. A % of EV is more applicable in a sellside situation.
Echo what was said above that the OID is effectively fees paid to the market on top of whatever commitment fee the banks charged.
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