We get data on repayment again from the cash flow statement.For accounts ineligible for the Bank Deposit Sweep (such as government accounts, insurance companies, banks and credit unions). Here we notice that Term Loan B starts to be repaid from this same year (notice, before Year 7, repayment on the Term Loan B was zero) and gets paid fully by Year 9. We do likewise for the following years, Term Loan A gets fully paid in Year 7 (the ending balance is zero). Then we go to the cash flow statement to get the repayment of 50.9 and subtract the same to get 374.1, which is the ending balance of Year 1. Next, in Term Loan A, we have 425 as the beginning balance in Year 1. For all the years the ending balance is zero. The repayment made, which is also zero, is taken from the cash flow statement. We start with our revolver, the beginning balance of which is zero. Given below is an example that covers only revolver, term loan A and B and focuses specifically on principal repayments. Year 0 is historical and Year 1 to 10 are projected years.įor debt repayments to work properly, one needs a debt schedule that is all filed in. Given below is an example to understand how to forecast ending balances for individual debt instruments. Model – Debt Schedule, Principal Repayment Example Usually, the following components are used to calculate interest on average balance: cash, revolver, including revolver commitment fee, Term A, B and C, second lien and high-yield notes. Upon completion of the cash sweep, interest is calculated by either using beginning balances in debt issuances or average balance in the same. Cash Sweep – Debt Schedule Interest Calculations: ![]() Cash available for acceleration is used to accelerate repayments on the most senior debt first. If there is more than one tranche of long-term debt, the seniority determines the order of the accelerated debt-related repayments. The smaller of these two amounts is the accelerated repayment. The scheduled amount of each debt repayment should take into account earlier accelerated repayments, otherwise the debt is likely to be overpaid.Īccelerated debt repayments are made, if there is surplus cash available and there is an outstanding balance of the debt tranche. Cash Sweep – Long-Term DebtĪny cash remaining after revolver repayment is available for accelerated repayments of long-term debt. First, repayment up to the level of surplus cash, second, repayment up to the beginning balance of the revolver, and issuance equal to any cash shortfall. The LBO model should account for three possible outcomes for the revolver. The cash sweep assumes that all available cash is used to repay debt, in order of priority – the senior most tranches first, followed by the subordinated or junior tranches.Ĭash flows available for debt repayment drives the amount of debt repaid each year. The initial debt amounts should be driven from the sources and use of funds table. The debt schedule should be set up in the order of seniority, starting with revolver, followed by senior secured loan, subordinated loan, PIK note, and followed by cash balances. Regarding debt, there are a number of items – revolver, term loan A and B, mezzanine loan, or a PIK note paid in kind and senior secured notes. Regarding the source of funds, the major items are debt financing and equity financing from private equity funds. Sources and uses of funds at the entry of an LBO deal help to organize what funds a company has, what interest rates it needs to pay etc. Initial amounts of debt should be driven from the sources and use of funds table.ĭebt Schedule – Sources of Funds and Debt Structure
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