How do debt prepayment penalties flow through an LBO?
So assume I have a $100 tranche of sub notes that have a call premium of 105 in year 4. Assuming I call them all in year 4, would I recognize the $5 breakage fee as expense, lowering my IRR? If so, is this included in interest expense or is it called something else?
Yes. Flows through P&L so cash cost is not quite $5 since tax deductible.
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