Case Study question

Hi All,

I've been sent a case study for a particular company and have been asked to assess whether or not I would invest in the senior notes.

1) My approach is to essentially write a credit memo, covering strengths, weaknesses+mitigants, high- level cashflow model etc  Is there anything else I should include in the paper?

2) how would I assess whether or not I should invest in the notes. Let's say the notes are trading at 85, would I calculate the YTM and if this is greater than the notes coupon, then yes? Or should I be looking at EV and assessing whether or not there is sufficient debt coverage?

3) Also been provided with an OM - is there anything I should look out for in particular in this document?

Thanks in advance

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Comments (3)

  • Analyst 2 in IB-M&A
Sep 25, 2021 - 6:25am

It's 3:20 AM on the WC - so sorry for the brevity. 

My thoughts - since it's senior I'd be focused on achieving full return of capital i.e. make sure you read the documents fully as 1st priority. They may have put some weird things in to see if you would catch them as they would need you to and escalate on the job.

But also make sure your deleveraging model trends properly and that the underlying business is sound etc. 

Another big thing is check out the collateral and issuance language in the OM. Is the collateral worth anything to other buyers? Under what conditions can you be primed? What is the basket and what contributes to the basket. Is there anything unusual here? What is the default language, do you have cross-defaults on debt that is junior to you etc? At what entity is the loan being issued from? Are there any collateral carve outs?

  • Associate 1 in IB-M&A
Sep 25, 2021 - 7:11am

Thanks for this. I've had a look and I can see i) PIK issued to parent company outside the restricted group ii) in the event of enforcement, noteholders will be repaid after RCF and other hedging obligations ahve been paid in full iii) notes are effectively subordinated to any existing and future indebtedness or obligations of the Issuer that is secured by property or assets that do not secure the Notes iv) guarantees may be removeed without consent of the holders

Are any of the above issues?


Most Helpful
Oct 12, 2021 - 4:04am

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