Unfunded Revolver Revolver still available (ie hasnt been taken out)
OID Discount on debt so OID= (100-price)/100*FV
it means that to buy $100 of Face Value of the Term Loan, lenders would only have to give us $99 in cash. This $1 difference is amortized over time or when the loan is repaid
BOP ...
LBOs Practice Exam Questions and
Correct Answers
Unfunded Revolver ✅Revolver still available (ie hasnt been taken out)
OID ✅Discount on debt so OID= (100-price)/100*FV
it means that to buy $100 of Face Value of the Term Loan, lenders would only have to
give us $99 in cash. This $1 difference is amortized over time or when the loan is repaid
BOP Book = BOP Face value - BOP OID. EOP Book = EOP
Face value - EOP OID.o Year 1 BOP OID is calculated from the capital structure as
Face Value * (100 - Price) / 100.
OID is recognized in two situations: amortization and recognition. OID amortization=
BOP OID Balance/yrs remaining on loan
OID recognized in repayment=
LIBOR ✅Cash interest rate. bps= %*10,000
Employee Stock Options ✅If old E> strike price then own 5/105 of company * old E
Strike price= old E
Refinancing ✅Recalculate debt by EBITDA (t-1)*Multiple
✅BOP Undrawn Capacity = Total Capacity ($100M) - BOP Balance; EOP Undrawn
Capacity = Total Capacity ($100M) - EOP Balance.
The logic for the (Payment) / Drawdown line is a bit more complex. If CF is negative and
we have capacity in the Revolver, we want to draw it down as necessary. If we have a
balance on the Revolver and positive CF, we want to repay the Revolver as much as we
can
Gross PP&E Y1 ✅=Gross PP&E Y0 + Capex Y1 (bc ur spending=value adding to
company)
Accumulated Depreciation Year 1 ✅Accumulated Depreciation
Year 0 + Plant Depreciation Year 1 + Maintenance Depreciation
Year 1.
Net PP&E ✅Gross PP&E - Accumulated Depreciation.
Retained Earnings Year 1 ✅Retained Earnings Year 0 + Net
Income Year 1 (there are no dividends here).
Paid In Capital Year 1 ✅Paid In Capital Year 0 + Shares Issued *
Par Value of Shares.
Par Value= Sponsorship E @ beg/SO
,Shares Issued will come both from the IPO and from management's options.
o Par Value of Shares will be equal to Sponsor Equity Value /
Shares Outstanding at the time of the initial deal (here
$4.45).
Capital In Excess of Par Value Year 1 ✅Capital In Excess of Par
Value Year 0 + CF from Stock Issuance Year 1 - (Paid In Capital Year 1 - Paid In
Capital Year 0).
Capital in Excess of PAr Value Y0= set to 0 if assume all shares were issues @ par.
This + PIC has to = SPonsor Equity
Call Premium ✅$$ given to investors when debt is called earlier
Leverage/Coverage covenan ✅Min leverage ratio or min interest coverage ratio
Cushion= EBITDA/Net Debt/(covenant Net Debt/Ebitda)-1
MOIC ✅Equity gained/equity commited
IF mgmt put in part of Equity, have to take that % out of equity gained @ end
IRR ✅MOIC^(1/5)-1
EBT ✅`
Call Premium/Div Recap after yr 3 ✅This means REFINANCE beg of yr 4 using Yr 3
EBITDA*Debt Multiples
Div Recap CFs in Returns Calculation:
Debt Raised
-Debt Repaid
-Call Premium on Sr notes
*How is this a Div recap
Cash from mgmt options ✅Mgmt option % * (Sponsor Equity y0 - Div payment y3)
WHY!??!
NOL ✅If have NOL, dont pay tax for the year and can get a REFUND for previous 2
years tax
NOL affects TAXES= (EBT-NOL Recognized)*t
, instead of just EBT*t. Doesnt affect IS in any other way
Employee Stock Option ✅Are CALLS= right to purchase
# shares repurchased - shares issued = Net FD shares
LEARN HOW AN OID FLOWS THROUGH AN LBO ✅
Non Cash interest ✅OID amortization + OID recognition in repayment + PIK interest
Call Fee ✅Paydown*((Call Premium-100)/100)
Management Rollover ✅Management rolls over equity & contributes to new
Rollover % * Existing equity value`
Cash Sweep? ✅
Each answer should be <1 min ✅
Do you plan on going to business school? Why or why not? ✅You'd like to attend only
if it teaches you skills that help you advance in your career.
Who else are you interviewing with/Where are you in the process with other firms?
✅can be a feeler as to how desirable you are. If many notable firms are interviewing
you, they feel reassured that you are a qualified candidate. Also, having multiple offers
gives them a sense of urgency that you're so good you'll get scooped up by someone
else if they don't give you an offer soon.
What in particular is attractive about this firm? ✅
Why did you choose the firm you are at now/Why did you chose your
group/sector/product/Why did you choose your college? ✅
What qualities/skills do you feel you have that are transferable to this industry? ✅
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