Leveraged Buy Out (LBO) Modeling

How much can a financial buyer pay? Participants will build financial models that analyze leveraged buyout (LBO) transactions as they are developed in today’s market. You’ll learn to handle tricky circularities inherent in structures like revolvers and cash sweeps along with modeling the return to different players in an LBO deal.

Modeling and Structuring

• Overview of leveraged financing, including how to structure a leveraged buyout
• Understanding how value is created in an LBO
• Overview of market expectations for debt and equity returns
• Planning a model
• Building a forecast of operating and investing line items in the financial statements
• Modeling and interpreting a financial structure

Typical LBO Financial Instruments

• Revolving Credit Facility
• Term Loans A, B, C
• Senior Notes
• PIK instruments
• Preferred Equity
• Equity
• Building cost assumptions for the different financial instruments
• Building a sources and uses of funds
• Integrating the financial line items with the operating and investing line items

Building a Fully Integrated LBO Model

• Building a cash flow statement for the LBO model
• Determining the debt capacity from the cash flow forecast
• Understand how to build a cash sweep into the model
• Building a cash sweep accelerator into an existing debt repayment schedule
• Calculating and interpreting credit metrics to determine if the debt is reasonable
• Fixing the debt capacity
• Building and interpreting an IRR calculation, including dealing with warrants
• Flexing the premium paid and the ownership structure to flex the equity and mezzanine returns
• Determining the most a financial buyer can pay in an LBO

Checking

• How to integrity check a LBO model

LBO Modeling Extras

• Building a cash-sweep debt repayment into the cash flow statement
• Building a cash sweep accelerator into an existing debt repayment schedule
• Dealing with cash-sweep related circular references
• Modeling mezzanine financing and the return to mezzanine holders
• Modeling the Internal Rate of Return (IRR) for different equity contributions and warrants