1) Why do you believe that in recent years PE sponsors have increasingly chosen to buy debt in their distressed LBOs?

2) What are the pros and cons of this investment strategy?

3) What issues are raised by buying only senior debt versus junior debt?

4) Explain in detail the waterfall model in case Exhibit 8what do senior debt holders, junior debt holders, and the original equity holders stand to recover under the midrange value?

5) Estimate (to the best precision that you can) the return to investing in debt using both Strategy 1 and 2 in the case text

6) Do you believe that the returns on the debt investment are high enough to justify Apax proceeding with the purchase of Cengage debt? Explain in detail.

The Case is by Cengage Learning: Can Apax Partners Salvage This Buyout? BY Darden Business Publishing

Susan Chaplinsky, Tipton R. Snavely Professor of Business Administration