Debt Fund Modeling in REPE?
I'm trying to study for some technical/case study exams for REPE debt fund recruiting, but I've found that finding reliable information on the modeling aspects/any templates is rather difficult. Basically, I'm trying to find any kind of LP-GP waterfall model template that demonstrates how key metrics are calculated for a given commercial loan and how the cash flows are treated differently than a standard equity side waterfall model. I hope I'm putting this into the right words. Any help would be greatly appreciated.
High level return modeling for debt fund is really easy and shouldnt be confused with equity modeling:
-> You need to know what your loan economics are - i.e. coupon, origination fee, exit fee, rate step ups, etc -> Lay these out in an excel sheet in the same way you would lay out the NOI/NCF/CFADS for an equity model - i.e. time 0 = - invested equity + origination fee, time 1 = annual coupon ...., time x = repayment of loan + exit fees -> Use the XIRR function to come up with an 'unlevered' yield, the same way you would for an equity model, except here that you are simply using the loan economics as your returns. -> Coming up with levered cash flows - to make things simple lets just imagine the debt fund using a warehouse facility (a loan on loan or a note on note) - again the same way an equity investor uses leverage via a loan -> Use the XIRR function to come up with a 'levered' yield - again the same way an equity investor would except here using 'levered' loan economics.
Property level cash flows and underwriting are absolutely important - but mores o for understanding the actual feasibility of the deal and structuring a deal (do you need debt service reserves? Is the exit value contemplated by the sponsor reasonable?)
If i missed anything, feel free to add on.