Enterprise Value Market/Par/Book value for calculating

I wanted to get your thoughts on how you like to look at debt in the EV calculation. (PAR / Market Value of debt) / Par value / or book value (OID/ or premium).

Notional Value: shows the amount of debt that will ultimately need to be paid back (probably most common method) but doesn't really show what the market is saying.

Book Value: probably better for distress/recovery exercises where the actual claim is the concern. It feels to me that book value would be used when doing a waterfall to recoveries.

(PAR / Market Value): Say a bond is trading at 90. You should use PAR/.90. The thought being that a company will need to either a) issue the same notional at a higher interest rate which will ultimately lower FCF which will cause the net debt to increase down the line or b) the company will need to issue more than PAR to cover this debt if the interest rate were to stay about the same. This method would probably be best to see what the implied trading EV of the company is. So a company with debt trading in the 90s is going to have a higher EV with this calculation (look expensive all else equal) to a company that has debt trading at par. You'd expect this to normalize via a lower market cap for the company with the more distressed debt.

*None of this is meant to be investment advice of any kind and is only meant to open a discussion about a topic I'd like to learn more about.

 
 
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