Consider the following capital structure 4.0% 1st Lien Senior Secured Bank Debt 6.0% 2nd Lien Senior...

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Consider the following capital structure 4.0% 1st Lien Senior Secured Bank Debt 6.0% 2nd Lien Senior Secured Bonds 10.0% Sr. Unsecured Bonds Equity Aggregate None of the debt is amortizing, and annual maintenance capex is $100mm Outstanding ($mm) 250 350 700 200 1,500 a) (8 marks) What is the EBITDA threshold where the company would enter bankruptcy, assuming it has no other sources of liquidity and cannot convince lenders to amend their claims? b) (5 marks) Suppose companies in this industry are typically valued at 4x EBITDA. What would be your expected recovery if you were a Sr. Unsecured Bondholder, assuming no priority claims or legal expenses? c) (2 marks) Suppose the company is sold to a PE firm after bankruptcy for a multiple of 3x EBITDA, despite the industry average being 4x EBITDA. Why might it have sold at a discount? d) (5 marks) What multiple would the company need to sell for in bankruptcy to give 50% recovery to the equity? Consider the following capital structure 4.0% 1st Lien Senior Secured Bank Debt 6.0% 2nd Lien Senior Secured Bonds 10.0% Sr. Unsecured Bonds Equity Aggregate None of the debt is amortizing, and annual maintenance capex is $100mm Outstanding ($mm) 250 350 700 200 1,500 a) (8 marks) What is the EBITDA threshold where the company would enter bankruptcy, assuming it has no other sources of liquidity and cannot convince lenders to amend their claims? b) (5 marks) Suppose companies in this industry are typically valued at 4x EBITDA. What would be your expected recovery if you were a Sr. Unsecured Bondholder, assuming no priority claims or legal expenses? c) (2 marks) Suppose the company is sold to a PE firm after bankruptcy for a multiple of 3x EBITDA, despite the industry average being 4x EBITDA. Why might it have sold at a discount? d) (5 marks) What multiple would the company need to sell for in bankruptcy to give 50% recovery to the equity?

Answer rating: 100% (QA)

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