Giddy | Private Equity Deal Finance for NIBC

AIF

Financing Private Equity Deals
for
NIBC

Prof. Ian Giddy, New York University

About the Session
This 1-day intensive session aims to improve participants' understanding of leveraged private equity finance. The session covers the specific challenges in private equity transactions, including the use of leveraged finance for buyouts and other purposes, and the various techniques of PE leveraged financing. 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. Working in teams, we will employ analytical methods including spreadsheet development, lectures and case studies.

Background Readings
These articles will help you prepare for the course.

Doing a Private Equity Leveraged Buyout
Note on Leveraged Buyouts
LBO Due Diligence

Course Outline

Topics

Resources

Financing Private Equity Deals

Private Equity Deals: Basic Economics for Late-stage Buyouts

The PE investor

What makes a business suitable for a PE buyout?
Leverage and required returns on equity

The equity instruments: examples

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
Adding value -- post-LBO restructuring
Illustration: the acquisition of TDC

Group Assignment: The LBO of AGI
Funding Instruments: Senior Loans, Mezzanine, and High Yield Bonds

Senior-sub structure in leveraged finance
Second lien notes
Mezzanine instruments: PIKs and warrant notes
High yield bonds
Seller notes and earnouts

Modelling the Deal

Debt capacity analysis and computations for leveraged finance
The 12-step method
Focus: synthetic ratings and debt pricing
Modelling the LBO cash flows
Focus: private equity exit strategies

Group Assignment: debt capacity for ISS

Cash flow analysis: LBO entry and exit valuation

Cash flow analysis: key corporate numbers
Cash flow analysis: key predictions
Cash flow analysis: financing assumptions
Cash flow analysis: sponsor and management IRR

Summary and Conclusions

Case studies
The LBO of AGI
Reykjavik Fleet Leasing
Madras Appliances
Nukem Security
LBO of ISS
iss_financials
Cognis Refinancing

Articles
PE Alchemy
Debt-to-EBITDA

Spreadsheets
leverage_effect.xls
wacccalc.xls
beta_and_leverage.xls
active_generation_lbo.xls
lbocapacity2.xls
lbo_exit.xls
iss_solution.xls

Additional Resources
Articles and Books
Notes on cost of capital and capital structure
The Syndicated Leveraged Loan Market
Second Lien Loans
Mezzanine Finance 1
Mezzanine Finance 2

Useful Links
fitchratings.com (bond ratings)
bondsonline.com (corporate bond spreads)
damodaran.com (industry ratios)
advfn.com (corporate financial ratios)
Corporate Finance and Debt Capacity Tables

About the Instructor
Dr. Ian Giddy, born in South Africa, has taught finance at NYU, Columbia, Wharton, Chicago and in over 40 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 North and South America, Europe, Asia, the Middle East and Africa. As a banker and consultant he has been involved in the growth of the structured finance market in the USA, Europe and Asia. 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.