InterviewSolution
Saved Bookmarks
InterviewSolution
| 1. |
Let's Say We're Analyzing How Much Debt A Company Can Take On, And What The Terms Of The Debt Should Be. What Are Reasonable Leverage And Coverage Ratios? |
|
Answer» This is completely dependent on the company, the industry, and the leverage and COVERAGE ratios for comparable LBO transactions.To figure out the NUMBERS, you would LOOK at "debt comps" showing the types, tranches, and terms of debt that similarly sized companies in the industry have used recently. There are some GENERAL rules: for example, you would never lever a company at 50X EBITDA, and even during the bubble leverage rarely exceeded 5-10x EBITDA. This is completely dependent on the company, the industry, and the leverage and coverage ratios for comparable LBO transactions.To figure out the numbers, you would look at "debt comps" showing the types, tranches, and terms of debt that similarly sized companies in the industry have used recently. There are some general rules: for example, you would never lever a company at 50x EBITDA, and even during the bubble leverage rarely exceeded 5-10x EBITDA. |
|