LBO Potential Report
When a bond issuing public company adds leverage and goes private, there can be severe negative consequences for existing bondholders. These can include lower prices, lower ratings and a lack of publicly available information.
With this in mind, we have scanned our RWP-Line database of approximately 600 bond issuing companies with publicly traded stock to identify those for which an LBO transaction appears financially feasible. At this time we define "financially possible" as a transaction in which:
(i) new debt is borrowed at 11%;
(ii) total debt up to 80% of total capital is allowed;
(iii) running 12 mos. historical EBITDA covers total interest by 2.0 times;
(iv) together with an equity contribution of 20% of total capital, proceeds would be sufficient to buy in the company’s entire common stock issue at a premium of 15% to market.
(ii) total debt up to 80% of total capital is allowed;
(iii) running 12 mos. historical EBITDA covers total interest by 2.0 times;
(iv) together with an equity contribution of 20% of total capital, proceeds would be sufficient to buy in the company’s entire common stock issue at a premium of 15% to market.
In addition, we also apply the following constraints to the "financially possible" companies to come up with the current list. These constraints are:
(i) the issuer is not currently in a financial distress situation;
(ii) the issuer has no near-term large capital expenditure needs;
(iii) expected post-LBO cash return is above 20%.
(ii) the issuer has no near-term large capital expenditure needs;
(iii) expected post-LBO cash return is above 20%.
