LBO MODELING KUBICLE EXAM QUESTIONS AND
ANSWERS WITH COMPLETE SOLUTIONS VERIFIED
GRADED A++
What are the typical fees in a LBO transaction?
advisory, debt, and legal & other
Advisory fees
paid to investment bank for asistance in completing the transaction. Based on a % of
the deal size. Lower if banks is representing the seller.
Debt fees
fees paid to banks, law firms, and other parties involved in issuing debt. Based on % of
total debt issued in the transaction
Legal & other fees
cover all other fees aside from advisory and debt fees. Usually a low percentage of the
purchase price
What is the definition of minimum cash balance?
The minimum amount of cash a firm wants to have on hand to meet unexpected cash
needs, shifts in demand patterns, or certain debt requirements.
How can the minimum cash balance be determined in an LBO deal?
By looking at historical cash balances, current ratio, quick ratio, future capex, and other
items that may influence cash balance.
, Secured debt
If company defaults, lenders can szie assets such as inventory and PP&E. Interest rates
tend to be floating (ex. LIBOR + 100 bpts). Amortization--> principal paid back
continually. Covenants: Net Debt/EBITDA (ensure the company has enough to pay
back the interest and principal). Prepayment is normally allowed
LIBOR
London Interbank Offered Rate. Indicative average interst rate a selection of banks are
prepred to lend one another on the London money market.
Unsecured debt
Lenders cannot rely on collateral for repayment. Interest rates tend to be higher and
fixed. Cash flow profile tends to be better since principal is usually paid back at the end
of the loan despite higher interest rates. Convenants but not as severe. Prepayment not
usually alolowed. Typically provided by merchant banks, hedge funds, or specific high-
yield debt funds
Types of Secured Debt
Revolver, term A, term B
Revolver
Similar to bank overdraft. The company has access to these funds but is not obligated
to draw them down. Usually has low interest rate with LIBOR the floor. If revolver is not
used, the bank charges an undrawn fees for making the cash available.
The debt has a floating interest rate with a typical duraction of 3 years, with no
amortization
ANSWERS WITH COMPLETE SOLUTIONS VERIFIED
GRADED A++
What are the typical fees in a LBO transaction?
advisory, debt, and legal & other
Advisory fees
paid to investment bank for asistance in completing the transaction. Based on a % of
the deal size. Lower if banks is representing the seller.
Debt fees
fees paid to banks, law firms, and other parties involved in issuing debt. Based on % of
total debt issued in the transaction
Legal & other fees
cover all other fees aside from advisory and debt fees. Usually a low percentage of the
purchase price
What is the definition of minimum cash balance?
The minimum amount of cash a firm wants to have on hand to meet unexpected cash
needs, shifts in demand patterns, or certain debt requirements.
How can the minimum cash balance be determined in an LBO deal?
By looking at historical cash balances, current ratio, quick ratio, future capex, and other
items that may influence cash balance.
, Secured debt
If company defaults, lenders can szie assets such as inventory and PP&E. Interest rates
tend to be floating (ex. LIBOR + 100 bpts). Amortization--> principal paid back
continually. Covenants: Net Debt/EBITDA (ensure the company has enough to pay
back the interest and principal). Prepayment is normally allowed
LIBOR
London Interbank Offered Rate. Indicative average interst rate a selection of banks are
prepred to lend one another on the London money market.
Unsecured debt
Lenders cannot rely on collateral for repayment. Interest rates tend to be higher and
fixed. Cash flow profile tends to be better since principal is usually paid back at the end
of the loan despite higher interest rates. Convenants but not as severe. Prepayment not
usually alolowed. Typically provided by merchant banks, hedge funds, or specific high-
yield debt funds
Types of Secured Debt
Revolver, term A, term B
Revolver
Similar to bank overdraft. The company has access to these funds but is not obligated
to draw them down. Usually has low interest rate with LIBOR the floor. If revolver is not
used, the bank charges an undrawn fees for making the cash available.
The debt has a floating interest rate with a typical duraction of 3 years, with no
amortization
