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.
Eum eos quae tempora est minima enim. Amet debitis iusto ut et qui fugit debitis. Est ducimus quia perferendis cum sit dicta. Est ut et ratione quae.
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...