Hi all,
Seen multiple ways of doing this, therefore my question:
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I would use the revolver in S&U. Revolver does count towards total debt and is used in the debt-service-coverage-ratio, which is a critical lending covenant.
I think it always counts as debt since it is collateralized by the most liquid and valuable inventory.
I don’t think this reply is 100% accurate
Normally revolver wouldn’t appear in sources unless it is drawn upon when the company gets acquired which doesn’t make sense because revolvers exist to provide liquidity in events you can’t make mandatory debt repayments or interest payments from your operating cash flow less investments
Agreed except we happen to only use ABL revolvers and usually have them about 2/3 maxed out (on available capacity) when we do acquire a business. We're niche and non-traditional so you're probably more correct on this in general.
Thank you - i assume same goes for the capex facility if there is one in addition to the revolver?
Strange that there is a facility specifically for capex? I’ve seen facilities used to maintain a minimum cash balance for the purposes of assuming normal occupation though. But yes, revolver is considered debt and should be treated as such everywhere in the financial statements.
It is common practice to ask for revolving capex credit line
then how do we treat capex revolver in debt schedule? could you plz elaborate on it a bit? I have a case study where capex is financed with capex debt, a 400mn revolving line facility but i don't know whether i should include this in source and use and neither do i know how to treat it in debt schedule cos normally revolver is drawn when excess cash is not enough for repayment. a million thanks in advance.
-For modeling I would normally assume your revolver is not a source of funding. Your plug should be equity in your sources. In a real buyout, the revolver may be a source of capital depending on the situation. The PE firm may call a certain amount of capital but end up having a small hole vs. the total uses, may have trouble syndicating the full amount of debt, etc. -Banks will always charge an underwriting fee on the revolver size, and potentially charge OID on the revolver size. Yes, include this in your financing fees -Don't worry about definitions of types of debt, when exiting an LBO, you should think "who needs to get paid before the equity starts receiving proceeds?" Whether a cash flow or capex revolver, this outstanding amount is senior in the capital structure to the equity, so it will get deducted from TEV when bridging to equity
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