New in PE and former consultant. How do you determine what debt ratios are appropriate for a deal? Like I often see that when I run a mini model the debt coverage ratios are super stretched in Y1/Y2 but then ease off really quickly.
Also, the more debt you add the less equity you can allocate. While it boosts IRR the absolute return in cash will be lower, which can also be of concern in the current era of dry powder or am I mistaken?
| +89 | Nothing to do at work & bored to hell | 9 | 5h |
| +67 | Do people over-index on 'moats' | 20 | 1d |
| +51 | Predicted Net Worth in Trodden Finance Path by 60? | 20 | 5h |
| +44 | Biggest (avoidable) failures in PE Investments? | 24 | 2h |
| +38 | Why is ROIC never really a topic when looking at companies IRL | 11 | 3d |
| +26 | SGE Final Round (Investment Summer Analyst) - Case Study & Technicals? | 13 | 6d |
| +19 | Senior IR Lifestyle | 3 | 5d |
| +12 | How to approach Buyside Recruiting | 3 | 4d |
| +12 | Honest opinions needed about lateraling | 4 | 1d |
| +12 | NY LMM PE Recruiting | 3 | 23h |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
depends on your business, what lenders are ok with, and finally what your IC want. All else equal IRR rules given it's what determines carry and one of the main performance metrics for LPs
but everything around 70-80% is pretty sound. If you anticipate some revenue shocks to the business, this also should be considered on how much debt you could support to not trigger defaults. But this can be negotiated with tiered leveraged buckets in the agreements to get more debt overall and just pay additional when you surpass the ratios in those periods
if you say that in the first 1-2 years you see more debt, you can also negotiate an initial covenant holiday with the lender meaning that in the first period they can't enforce maintenance tests
otherwise if you fail in those you just reduce the debt until all sides are comfortable
Temporibus pariatur sint vitae distinctio dignissimos. Magnam pariatur est fugit alias dolorem vel. Assumenda non quibusdam ipsa. Voluptatem molestiae voluptates consequatur voluptas.
Minima magnam rerum quia ex velit nihil beatae. Ullam consequatur commodi vitae consequatur ut. Nobis impedit sint nesciunt dolore sit ut. Facere maiores qui exercitationem ut similique sunt.
Amet a beatae quisquam fuga et natus quis quam. Delectus ullam eveniet ut. Delectus est quas error quidem dignissimos dicta. Nostrum praesentium ab beatae tempora aut. Quo quaerat sunt debitis voluptates.
Iure ipsa sit nisi iure. Pariatur ea sunt asperiores. Et voluptas ipsam omnis placeat itaque nulla. Est et mollitia corporis perspiciatis tenetur ut debitis aut.
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...