You buy a $120 EBITDA company at a 10x multiple with a 4x cash-pay 1st lien and 7x total leverage, where the 2nd lien carries 20% PIK interest. After a 1-year hold you sell for $696. What are the loan sizes and sponsor equity at entry, and what is each tranche trading at on exit?

Question

IBPrep · Accepted Answer

Entry: EV = $120 x 10 = $1,200. 1st lien = $120 x 4 = $480 (cash-pay).

You buy a $120 EBITDA company at a 10x multiple with a 4x cash-pay 1st lien and 7x total leverage, where the 2nd lien carries 20% PIK interest. After a 1-year hold you sell for $696. What are the loan sizes and sponsor equity at entry, and what is each tranche trading at on exit?

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