Helping portfolio companies evaluate debt options

Helping a portco evaluate debt options with different terms/lengths/fees. What's the correct way to determine the best option? Model out cash flows and choose the option with the highest IRR?
  • Brian Yoon: Hey Ben, Brian here previously used to work in debt restructuring now at Hum. You need to first create a robust business plan and understand ur liquidity. Starting there, you can see if a term loan or something like a revolving line of credit would work based on your unlevered free cash flows. Since perspective is on the debt management front, I wouldnโ€™t use IRR but see which option increases your future enterprise value the most based on your terminal cash flow. Hopefully this link serve as a resource as well
  • Ben Beverly: hey Brian, thanks for the info. The company is looking at equipment lease facilities with different drawdown periods and then equipment purchases at the end of the lease term. Would your recommendation still apply?
  • Brian Yoon: this sounds like a typical ABL (asset backed lending) but the collateralization is focused around the inventory versus AR. What I’m confused here is that with a lease you are required to pay for the final cost of equipment. I would run a basic analysis of running this lease vs just buying the equipment upfront vs a pure lease
  • Ben Beverly: thanks. The company has decided they want to run the equipment lease and is deciding between a few different term sheets now. What do you think is the best way to compare the different lease options?
  • David Teten: See

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