[URGENT] Debt fund modelling test
Hi monkeys,
Bit of a background: I've recently finished my CRE internship focusing on office/industrials. Did some modelling, but nothing extremely complex.
I'm currently interviewing with a boutique debt fund in continental Europe, and the second stage is a 2-hour modelling test. From what I was told, it's going to be a residential development with 2 tiers of debt (senior/mezzanine). I'm quite comfortable with development models, however never had to model out debt in two tiers.
So the questions are:
- How does senior/mezz look in a model? Does it require two different amort schedules or can everything be done in one (considering 2 hours to complete) and then summed into one line in cashflows?
- How do the different tiers affect the waterfall?
Thanks for the help!
You should build a separate amortization table for each loan. Combining all debt payments on the cash flow is up to you. That would look cleaner but has a higher chance of mistakes.
Having two loans won't affect your waterfall. Whatever cash flow you end up with after all debt service is what gets run through it. Why does a debt fund care about waterfalls anyway?
Thanks for explaining. 2- I'm not sure if waterfall is going to be included, but the guys during the interview mentioned the test would be the same as my equity-side models, so trying to prepare for everything just in case.
You'd want to know the DSCR & LTV for the senior loan and mezzanine loan. The pricing for those different levels of risk can make a total amount of debt too much, so the blended spread has to make sense.
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