Downside LBO Model-PC

In this model, we are building a 'Downside' case to stress management's assumptions and assess how our lend fares given a downturn in business performance. 

Within this model, we are also looking to test how our structure provides credit protection. For example, how much value is preserved by cash trapping in the event a covenant is breached?  

Goal: complete the template in under 45 minutes, model from a blank sheet in under 1 hour. Try to summarize in 3 sentences or less why this would or would not be a good investment purely based on the output of the model. 

Steps:

1. Download the prompt and use the attached template to assist your modeling 
2. Take a minute to look through the different sections of the model to understand where inputs may be flowing and where outputs are coming from (one base case sheet and one downside sheet)
3. Work the model top-down filling in the assumptions section, then the sources & uses, etc. You should only have to fill out the cells colored light gray 
4. After a first try, open up the answer file and really study the underlying formulas and the levers to impact returns
5. Attempt the template again. After completing the template with no assistance from the answer file, open up a blank excel and try to build a model from scratch to answer the prompt

The_Pulse_LBO_Model_Downside_Prompt PC.docx

The_Pulse_LBO_Downside_PC.xlsx

The_Pulse_LBO_Downside_Answer_PC.xlsx

📌Password: Buyside📌

Tip: We typically want to stress the downside case realize an impairment to our base case projected returns. You will likely encounter case studies where downside assumptions are not provided. The safe assumptions to stress are: exit multiple (don't need to be as drastic as we are here), revenue growth assumptions, and the cost structure. I would avoid messing around with balance sheet assumptions.