Modeling debt

vikram_eda:

Friends,

Which sources do you use to learn spreadsheet modeling of debt (senior, sub, revolver, LoC, Mezz etc) ?

And then computation of ratios - Fixed charge coverage, Debt-to-Total Capital, Interest Coverage etc and if the borrower is going to trip a covenant or not ?

Vix

Hey Vix,

I'm not sure if there are any specific sources to teach you how to model debt but do you have any specific questions? for most debt securities it is pretty straight forward. Beginning balance less principal = ending balance, then caluclate the interest expense off of the average of the BOP balance and EOP balance.

Where it gets more complex is when you have PIK (Paid-in Kind) interest -- ie interest that is non-cash added to the debt balance -- or convertible securities and preferreds. You might want to try and get your hands on a template lbo model that has some of these securities built in so you can see how they are modeled and then try to recreate them on your own. For the revolver you need the full model to know what your cash need or surplus is after each period (basically it's a nested IF statement).

good luck,
Patrick