Structuring Debt Financing

When To Use

• Designing the debt component of an acquisition financing package (LBO, strategic M&A, take-private)
• Evaluating a target's debt capacity and optimal leverage ratio prior to a bid
• Negotiating term sheets or commitment letters with arranging banks
• Comparing financing alternatives (bank debt vs. high-yield bonds vs. mezzanine vs. unitranche)
• Stress-testing a proposed capital structure under downside operating scenarios
• Advising on covenant packages and intercreditor arrangements

Inputs To Gather

• Target financials: 3–5 years of historical income statements, balance sheets, and cash flow statements; management projections or a base-case operating model
• Transaction details: enterprise value, equity contribution, assumed purchase multiple, closing timeline, any rollover equity or seller notes
• Market context: current benchmark rates (SOFR/Term SOFR), indicative spreads for comparable credits, recent comp financing packages in the sector
• Credit metrics: target leverage (Total Debt / EBITDA, Senior / EBITDA), interest coverage (EBITDA / Interest, EBITDA − Capex / Debt Service), fixed charge coverage
• Sponsor/buyer requirements: target equity IRR, minimum cash-on-cash return, dividend recapitalization flexibility, desired amortization schedule
• Regulatory or rating constraints: any investment-grade rating targets, Basel III/IV capital treatment for bank lenders, industry-specific leverage caps [VERIFY: sector-specific regulatory leverage limits vary by jurisdiction and industry]