Evaluating Multiple Capital Structures in a LBO Model

Evaluating the appropriate capital structure for a particular acquisition is critical. In this post we will explore how to build a schedule to facilitate this process, and then demonstrate how to link this schedule to a LBO model.

As the video highlights, this can be helpful to the underwriting process because a private equity firm will generally contact multiple lenders in an effort to secure attractive financing terms. Having a schedule that facilitates cycling through the relevant information in each term sheet received can save a substantial amount of time.

Part 2 will also demonstrate how to use this schedule to quickly determine the most attractive term sheet as it relates to both returns and risk. The second video highlights that the debt profile that maximizes returns may not always be the most prudent option. The outcome needs to be measured against both returns and the debt convenants put in place. 

Capital Structure Toggle Part 1 of 2 (Template for Download):