- resources in finance

Euromoney Training

Private Equity & LBO Modeling

Prof. Ian Giddy
New York University

About the Course

This 3-day course will improve participants' understanding of leveraged private equity finance and how the deals can be analyzed, in the context of difficult credit conditions. The course covers the specific challenges in private equity transactions, including managing sponsor equity and the use of leveraged finance for buyouts and other purposes. The course also focuses on modeling and managing private equity investments, and on the various techniques of leveraged financing. Such instruments include first- and second-lien loans, pay-in-kind notes and mezzanine finance, and high yield bonds. Typically, the target company's assets and cash flow serve as support for the funding taken out by the acquirer, which repays the debt out of cash flow and asset disposals of the acquired company.

Key Issues in Private Equity and Leveraged Finance
  • Does private equity outperforming public equity? How much of private equity is buyout capital and how much is venture capital?
  • What is leveraged finance? Why and how should companies add substantial debt to their balance sheets?
  • What are the key credit, pricing and rating issues surrounding leveraged lending?
  • How can senior and mezzanine debt be used to facilitiate a management buyout or other forms of ownership transition? How can one assess a company's borrowing capacity?
  • How do mezzanine financing techniques such as PIKs, warrant notes, and participation loans work? When does it make sense to use them? How are they priced?
  • Why and when should high yield bonds be used?
  • How can one model the cash flows and debt paydown in a leveraged buyout?
  • How does a private equity fund structure a buyout deal?
  • What restructuring is possible in the credit crunch?

Who Should Attend?

The seminar is of relevance to private equity specialists, asset managers, commercial and investment bankers, securities analysts, and other individuals whose professional future may be enhanced by an understanding of leveraged and private equity financing techniques. It will also prove useful to corporate financial officers and other potential borrowers, to lenders, and to those involved in buyouts and acquisitions.


Participants will be provided with a package of materials useful to the structuring and analysis of specially tailored leveraged financing techniques, including pertinent articles, rating agency reports and sample documentation from actual deals done in North America, Europe and elsewhere. The course employs an interactive learning style, combining lectures, discussions and teamwork. A clear framework for private equity financing is presented, followed by group work on the assignments and case studies

Outline of Workshop

Day 1
  • Private Equity: Venture Capital and Leveraged Buyouts
    • The two forms of private equity: a convergence?
    • Key elements of Venture Capital investment
    • Exit and performance measurement
    • Private equity deal financing in the credit crunch
  • Private Equity Deals: Basic Economics for Late-Stage Buyouts
    • What makes a business suitable for a PE buyout?
    • Leverage and required returns on equity
    • The equity instruments: examples
    • Managing a private equity fund
    • Fees and compensation: 80-20
    • Critieria for a LBO
    • Case study: Lifetime Fitness. Business and financial suitability
    • Debt Capacity Analysis
  • Deal Logic for PE Leveraged Acquisitions
    • The keys to LBO value: valuation of the company, valuation of the LBO gains, assessment of debt capacity
    • The special situation of LBO valuation (financing-driven valuation)
    • Structuring sponsor and management incentives and gains - envy factor
  • Modeling the Deal
    • Profile of a leveraged lender
    • Debt capacity analysis and computations for leveraged finance
    • The 12-step method
    • Case study: Nukem Security Services
    • Focus: synthetic ratings and debt pricing
    • Modeling the LBO cash flows
    • Focus: private equity exit strategies
    • Modeling the exit valuation

Case Studies
Lifetime Fitness: Buyback or Buyout?
Nukem Security Services
The LBO of ISS


Day 2 

  • Group Assignment: Debt Capacity and Equity Return
    • Cash flow analysis: key corporate numbers
    • Cash flow analysis: key predictions
    • Cash flow analysis: financing assumptions
    • Cash flow analysis: sponsor and management IRR
    • Case study: The Buyout of ISS
  • Funding Instruments: Senior Loans, Mezzanine, and High Yield Bonds
    • Senior-sub structure in leveraged finance
    • Senior secured debt: A/B/C structure
    • Secured bank debt: terms and conditions
    • Securitization-based financing
    • Second lien notes
    • Mezzanine instruments: PIKs and warrant notes
    • Seller notes and earnouts
  • High Yield Bond Financing
    • Trends in covenants, pricing and defaults
    • Example: The Piaggio Bond
    • Focus: The US high yield market for non-US issuers
    • Case study: Hertz High Yield Bonds. Delegates consider a high yield bond issue in the context of a leveraged acquisition. What terms and conditions would such a bond require, and what pricing and fees would be involved?
    • Comparison of US and Eurobond market
    • A review of pricing and other key terms and their negotiation
  • Structuring and Managing an Emerging Market PE Deal
    • Special constraints of emerging markets
    • Key participants, including funds, banks and development institutions
    • Profile of an emerging market investor: FMO
    • Participation finance: a special form of mezzanine
    • Case study: Suriname Hydropower Participating Mezzanine
    • Modeling the financing: debt/mezzanine/equity


Case Studies
Marsh Diagnostics Term Sheet
CUSA Busways
Second lien term sheet
Jefferson Smurfit
Woodstream Termsheet
Hertz High Yield Bonds
Suriname Hydro

Leveraged Rollups
Leveraged Recaps
The Value of Loan Covenants


Day 3

  • Financing a Buyout: Cash Flow Modelling
    • Modeling a LBO: key corporate numbers
    • Modeling a LBO: key predictions
    • Modeling a LBO: financing assumptions
    • Case study: Jordan Cement. This case offers a framework to explore the power of cash flow modelling and sensitivity analysis in a leveraged buyout.
  • Leveraged Build-Ups and Leveraged Recapitalization
    • Proactive leverage: roll-ups and recaps
    • Impact of high leverage on business efficiency and shareholder risk
    • Sealed Air case study: Leveraged recaps with share buybacks or special dividends to enhance shareholder value
    • Leveraged recaps for ownership transition or cash-out
    • Case study: Ahlsell. We look at the tiering of funding instruments in this Swedish leveraged dividend recapitalization.
    • Leveraged defensive recaps
    • Leverage and exchange offers
    • Case study: Truck Toys. Delegates learn how a company with stable and growing free cash flows can exploit its debt capacity, and discuss the risks it takes in doing so.
  • Structuring a Private Equity Leveraged Deal: the Players and the Methods
    • The sequence and legal structure
    • Case study: Kaydon Corporation. Is this company suitable for a private equity acquisition?
    • Private equity investors: how a PE fund looks at a deal
    • Profile of a private equity fund (Bostonian Capital)
    • Arranging the bank finance: pricing and distribution of the loan
    • Case study: Funding Marsh Diagnostics. Delegates examine the pricing and syndication structure of a term acquisition loan and revolver.
    • Leveraged finance in the CDO market
    • Case study: KKR Financial CLO. Why did KKR get involved with the CDO market? How did it achieve an AAA rating on a portfolio of leveraged and mezzanine debt?
    • Structure and pricing of credit default swaps
    • Arranging the mezzanine finance
    • Mezzanine investors: how a fund looks at a deal (IHG Mezzanine Partners)
  • Post-Deal Management
    • Post-transaction monitoring
    • Refinancing and asset sales
    • Exit strategies and alternatives
    • Distress restructuring (Building Materials)
  • Summary and Conclusions


Case Studies
Jordan Cement
Sealed Air
Ahlsell's Recap
Truck Toys
Bostonian Capital
Marsh Diagnostics Term Sheet
KKR Financial CLO
IHG Mezzanine Partners

Coach USA_LBO_model.xls

More Resources
  1. Corporate information:,,
  2. Valuation Models (xls) - Rough calculation for choosing the correct valuation model.
  3. Corporate Finance and Debt Capacity Tables - Ratios and comparables to estimate normal gearing and valuation
  4. Rating Calculation (xls) - Estimates a rating and cost of debt based on the coverage of debt by an organization.
  5. LBO Valuation (xls) - Analyzes the value of equity in a leverage buyout.
  6. More Leveraged Finance articles
  7. Sample documentation for leveraged loans, leases, etc
  8. What is Private Equity?
  9. A Note on LBOs
  10. Introduction to Leveraged Finance
  11. How LBO Funds Work
  12. Debt-to-EBITDA
  13. LBO Legal Checklist
  14. Second Lien Loans
  15. Mezzanine Finance 1
  16. Mezzanine Finance 2
  17. More reading: Mergers, Acquisitions, and Corporate Restructurings by Patrick A. Gaughan; Leveraged Finance website at
  18. More spreadsheets: woodstream.xls iss_solution.xls ISS Actual Financing suriname_solution.xls
Sources:, Bank of America Business Capital, and others

The Instructor

Ian Giddy, a native of South Africa, has taught finance at NYU, Columbia, Wharton, Chicago and in over forty countries worldwide for the past three decades. He was Director of International Fixed Income Research at Drexel Burnham Lambert from 1986 to 1989. The author of more than fifty articles on international finance, he has served at the International Monetary Fund and the U.S. Treasury and has been a consultant with numerous corporations and financial institutions in the U.S. and abroad. As a banker and consultant he has been involved in the growth of the leveraged and mezzanine markets in the USA, Europe and emerging markets. He is the author or co-author of The International Money Market, The Handbook of International Finance, Cases in International Finance, Global Financial Markets, Asset Securitization in Asia and The Hudson River Watertrail Guide. He and his wife are the founders of Cloudbridge, a nature reserve in Costa Rica. | | | | | contact
Copyright ©2009 Ian Giddy. All rights reserved.