CASH FLOW MODELING | Lev Fin | Help Needed

Dear all,

I will be sitting a Cash Modelling test later this week at a BB Lev Fin team. I have been trying to find out as much as possible about how such a model looks like and what are the main assumption included, however, I have been unsuccessful so far. It seems to be different from the standard LBO, DCF, ect.

Has anyone worked with a cash flow model for debt repayment purposes?
Any inputs will be highly appreciated!

Thanks

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Comments (14)

Mar 11, 2020 - 4:20pm

I know this is late, but I am looking for a similar thing. Need to know how ot value a Senior Loan for a company that issued it 2 years ago and it is trading at a different price.

Jun 5, 2017 - 1:12pm

LevFin Models (Originally Posted: 03/29/2011)

I've just been informed I was selected for a LevFin interview in which I was expected to be familiar with industry trends & models.

I've been looking and reading S&P LCDS for some trends but wanted to reach out to WSO regarding any other resources I may use.

Regarding the models, what would be the best way to familiarize myself with LevFin models? Are there any available online?

Additionally, I know that the levfin market has been extremely active. Would it be correct to assume that it is so because of the massive repricings in the market due to the narrow spreads from new issues? (Take from LCDS) If anyone could also further explain this I would appreciate it!

Thanks!

Jun 5, 2017 - 1:13pm
PIE:
Additionally, I know that the LevFin market has been extremely active. Would it be correct to assume that it is so because of the massive repricings in the market due to the narrow spreads from new issues? (Take from LCDS) If anyone could also further explain this I would appreciate it!

It's true that there has been a lot of repricing. Other reasons for activity:
1) Dealing with 2011/2012 maturities: There was a huge wall of debt from 06/07 LBOs coming due in the next few years, and a lot of companies came to the market to extend/refi this debt.

2) New money acquisitions/LBOs: Sponsors and strategics have come back with new deals, which had been quiet/dead for some time prior to 2H10.

3) Huge loan fund inflows: Record inflows into loan funds over the past 6 months=demand up=prices up/spreads down=new deals and repricings.

4) Dividend-taking: A lot of sponsors who need to get something to show for their efforts took dividends in 2H10 as performance valuations recovered but the IPO/M&A market wasn't back yet. Arguably these deals were tax-motivated as well, due to the potential changes in the treatment of dividends.

5) Might want to talk about the number of deals/repricings that have been pulled because of market resistance in the last few weeks.

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Jun 5, 2017 - 1:16pm

This information is great, thanks alot. I hope you don't mind if I reach out as I dive into this info.

Regarding repricing, what types of models are used or what really goes on in a repricing?

Additionally, what exactly is the correlation between the loan market and the equity markets? Would a stronger market cause less defaults, and therefore drive spreads lower and in turn cause more repricing activity? How does market resistance increase deal flow?

Also building on resistance/technicals. While scanning through S&P LCDS, the trend seems to be that "technicals are shifting toward issuers" What technical would they be speaking about?

Sorry for the constant barrage of questions, your help is very much appreciated, I should set up a tutor session with you haha

Kenny_Powers_CFA:
PIE:
Additionally, I know that the LevFin market has been extremely active. Would it be correct to assume that it is so because of the massive repricings in the market due to the narrow spreads from new issues? (Take from LCDS) If anyone could also further explain this I would appreciate it!

It's true that there has been a lot of repricing. Other reasons for activity:
1) Dealing with 2011/2012 maturities: There was a huge wall of debt from 06/07 LBOs coming due in the next few years, and a lot of companies came to the market to extend/refi this debt.

2) New money acquisitions/LBOs: Sponsors and strategics have come back with new deals, which had been quiet/dead for some time prior to 2H10.

3) Huge loan fund inflows: Record inflows into loan funds over the past 6 months=demand up=prices up/spreads down=new deals and repricings.

4) Dividend-taking: A lot of sponsors who need to get something to show for their efforts took dividends in 2H10 as performance valuations recovered but the IPO/M&A market wasn't back yet. Arguably these deals were tax-motivated as well, due to the potential changes in the treatment of dividends.

5) Might want to talk about the number of deals/repricings that have been pulled because of market resistance in the last few weeks.

Best Response
Jun 5, 2017 - 1:14pm

RE: Models, you should probably know more conceptual stuff rather than technical (unless you're a lateral). Concepts will probably include LBO questions - characteristics of a good LBO candidate, what are the drivers of returns, etc. Some model-type questions may ask you to walk through an lbo model; keep it simple unless you've had prior experience. Input historicals, then assumptions for financial statements up until EBIT, then pull in desired cap structure (look at comps), sources and uses, link to BS, etc.

Macabacus covers this stuff pretty well.

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