Calculating cost of debt in LBO
Preparing anfor a PE firm and wanted to double check my cost of debt rationale.
Targeting a 60/40 debt/equity mix
Target Co to be acquired with 2 Term Loan B's
Term Loan B #1 cost of debt =+ (target co interest expense/target co debt)
- Amortised evenly over life of loan
Term Loan B #2 cost of debt = Term Loan B #1 cost of debt + 300bps
- Balloon payment at the end of the term