LBO - Model Test - Questions
Have a few LBO modelling tests coming up and have been preparing in advance.
One area that I am confused about is Preference Shares / Loan Notes. All of the model guides that I have seen all assume that the PEH invests only in ordinary shares (i.e. their return is just closing equity / opening equity). Is there a reason for this? From what I understand, in practice almost all deals are structured so the PEH has a preferred return using pref shares / loan notes. Should I be modelling this out in any case studies that I do, or is it over complicating it?
Secondly, this is a bit basic but I am confused with how ownership works with preferences shares / loan notes. Are preference shares / loan notes the same thing? Do they count towards my ownership % on exit?
E.g. If I have a 1,000financed 900 PEH loan note, 50 ordinary PEH, 50 ordinary management. What is my ownership % on exit? Is it 50% or 95%?
Really appreciate any tips. Thanks.