around 70/30 but the debt is often a combination of different types of debt with different rates. Except the interest rates the company also need to pay financial fees to the sponsors which usually is between 1-2,5 % of the debt depending on what type of debt you have got. Historical period Projection period Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 EBITDA 25900 46300 41900 43800 47340,76 50654,61 54200,43 57994,47 62054,08 66397,86 71045,71 % margin 0,318072 0,375066 0,302925 0,296991 0,3 0,3 0,3 0,3 0,3 0,3 0,3
10 3.4.6. Build debt schedule The debt schedule links necessary information from the cash flow statement such as cash flow from operating and financial activities. Then it is possible to calculate how much cash flow there is left for debt repayment. Cash flow from operating activities - Cash flow from Investing Activities= Cash Available for Debt Repayment A schedule can then be created where the mandatory debt first is paid off from the beginning balance of the year. The mandatory debt, amortization, can differ but is normally 1% of the total debt. The remaining cash flow is used for optional debt repayments. Cash Available for Debt Repayment - Mandatory Repayment= Cash Available for Optional Debt Repayment The beginning balance of the first year is the total debt, but for every year that passes and repayments are made (both mandatory and optional) the beginning balance reduces until all is paid. Other schedules for each and every type of loan can then be created based on those results. The point is to see if there is enough cash flow generated from the company to cover the debt repayments. The interest rates which the interest expenses is based on depends on two things; a rate such as STIBOR (the Stockholm Interbank Offered Rate, a rate at which banks loan between themselves) and secondly the spread on the loan. The spread from the STIBOR rate differ due to what sort of debt you chose but around 3,5 percentage point above is commonly used in case of bank loans also called term loans. Senior subordinated notes works in a different way. Instead of amortization a yearly coupon is paid in form of an interest expense of around 10% of the total loan. The whole sum is paid at maturity in a so called bullet payment. 3.4.7. Return analysis The return analysis is of great importance when the sponsors make decisions. The return analysis provides an answer to whether the investor should expect to get sufficient return on the investment or not. Historically, investors want an IRR (Internal rate of return) above 20% (Rosenbaum and Pearl, 2009). The IRR depends on many different things such as the future financial performance (growth rate, EBITDA, capex etc.), the purchase price, the size of equity contribution, the exit year and exit multiple. They are all predictions and assumptions which is why you can’t completely rely on the calculated IRR. However, it is always true that the higher IRR you have, the better investment. The IRR is based on the net present value (NPV) equation. The original equation is: ∑ ( ) Formula 1a C stands for cash flow at time n and NPV is the present value of all future cash flow. The initial investment is C 0 and NPV is the equity value at time N.
- Fall '18
- Debt, Leveraged buyout, LBO