LBO and leases

Hey monkeys,

I am doing an LBO model and the company has a fairly significant amount of leases as a result of IFRS 16 accounting. The leases should be included in EV and net debt. As the leases will be rolled over, how do I take this into account in the model? It is included in EV so it is included in uses. Should I add it to the sources part of the S&U table to reflect this?

Comments (22)

 
Jul 15, 2020 - 5:08pm

Agree with Rover-S - basically I think the uses and sources table will look something like the following

Background
EV = 100
Debt = 50
Lease = 10
Cash = 10

Uses
EV = 100
TX costs = 2
Min cash = 5
Total = 107

Sources
Debt assumed = 50
Leases assumed = 10
Sponsor EqV = 47
Total = 107

Regarding the modelling part, 1) calculate the PV of the lease obligation and its corresponding right to use asset 2) project their future balance on the BS 3) link it to the lease expense on the P&L (i.e. RTU amort. + and rent derived from the interest rate used to calculate the PV of the lease) and CFS (i.e. lease obligation amort.)

This is how I would do it and hope this helps!

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