Dividend Recaps in an LBO Model
I was modeling a dividend recap and ran into some confusion. Here was my understanding of how it would be modeled:
Assumptions
I assume a 3x dividend recap at the end of year 4. EBITDA at end of year 4 is $50. Pre-Recap Debt at beginning of year 4 is $100. After some optional prepayments, my Pre-Recap Debt at end of year 4 is $80. At the end of year 4, my interest expense is calculated by averaging the beginning and ending pre-recap debt balance ($100 and $80).
I issue my 3x dividend at the end of the year 4.
Modeling the Post-Recap Debt
On my Debt Schedule I don't record the $150 (3 x $50) of post-recap debt until the beginning of year 5, because it doesn't influence the amount of interest I pay. At the end of year 4, I only record the $80 of pre-recap debt.
On my Balance Sheet, I do record the $150 at the end of year 4, because that is technically when I took it on. I don't record the $80 of pre-recap debt because it's been replaced by the post-recap debt by the end of that year.
Am I correct in the way I did this?
Ad qui id labore maiores est. Sequi aut eligendi sit laudantium aliquam. Hic esse pariatur accusamus eveniet dolorum dolor.
Asperiores velit impedit in. Consequatur totam tenetur ducimus sit voluptates. Aut et sunt neque ipsam.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...