LIBOR(EURIBOR) for LBO ?
which LIBOR/ EURIBOR is usually used for LBOs, the 3m forward? why not the 6m forward? and in which currency, the GBP LIBOR?
THANKS
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Interested in both Us and UK
In the US, you will use USD LIBOR. Your base rate should be denominated in the same currency as your cash flows.
If you are modelling sterling cashflows, then definitely use a GBP base rate.
You are probably aware that some LBO debt tranches require a LIBOR floor, typically 75 bps or 100 bps. In that case, your model should assume that floor as a base rate (provided the actual rate is lower than that - which it is now). Lots of transactions these days have this floor feature.
If you are modelling quarterly cashflows, then the right base rate to use is GBP 3M LIBOR forward curve (subject to the LIBOR floor above, if there is any). If your model is annual, you can assume you have swapped your forward LIBOR and you can use the same base rate for each year. Modelling an exit in 5 years? Then your base rate is GBP LIBOR 5-year swaps rate (available on Chatham Financial). Yet again, check for the LIBOR floor.
Good luck!
Also assuming you have access to Bloomberg you can use the swap rates from the IRSB function. Or if you don’t want to use the fixed-floating swap rates and just get projected LIBOR, you can use the FWCV function
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