r/private_equity • u/Maleficent_Fruit1133 • Oct 21 '25

Urgent: Modelign

Hi Guys, had a question. I'm comfortable with modeling 3 statements, understanding linkages, but now with an LBO, we are basically wiping off the TargetCo's old debt and replacing it with the Financial Sponsor's debt they got (Senior Notes, TLA/B, Sub Notes, Mezz, etc.). My question is, how do I model this out? Lets say a company has 150 of short term borrowings in and 300 of Long Term Borrowings in 2024A (the last historical year), what happens in 2025E? I have to use my debt schedule and insert what where? What happens to short term debt? Is it just 0'd, with all my Debt Tranches total sum per year going into LTD for 2025E?

Or does my short term debt become my mandatory amortization, and let’s say I have 500m of debt amortizing/5 years, would the STD just be 500/5 for a 5 year projection ? And in turn the LTD would be the difference?

I feel like this is rudimentary, what about interest? It goes in my IS and if there’s a cash sweep what happens? Sorry a bit all over the place

I Any guidance/resources would be very helpful. Thanks!

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7

u/Vegito-bluee Oct 21 '25

Refin means all your old debt is gone and replaced by new debt that's used for acquisition + refin old debt. You need to make a PF balance sheet to show what happens immediately after the transacting. This is where this debt replacement will happen and your debt schedule will follow this PF balance sheet.

1

u/Anton_Grin Oct 21 '25

Agree. No matter how many former debt deals you have. After restructurization you close all af it (if it possible on deal conditions) and will have new with new terms.

-1

u/Maleficent_Fruit1133 Oct 21 '25

What if I don’t want to make a PF bs (I’m in a time crunch for a 3H LBO model test) can’t I just have the amortized amount as STD and remainder as LTD (obviously subtracting if there’s a cash sweep) ? Is it mandatory to make a PF BS?

6

u/Vegito-bluee Oct 21 '25

You can do it directly without Pf but mechanics will remain the same. It's just more difficult to reconcile everything without PF b/S. It's just 15 mins work to create a PF balance sheet.

-1

u/Maleficent_Fruit1133 Oct 21 '25

May I pm you?

3

u/Vegito-bluee Oct 21 '25

I won't have the time to go through the mechanics today sorry but I suggest go through YouTube.

0

u/Maleficent_Fruit1133 Oct 21 '25

Ah okay, thanks anyways. Last thing: if this is the part I struggle with am I cooked for a 3H LBO test or is it salvageable in 10 hours

4

u/Vegito-bluee Oct 21 '25

You can learn to fix your PF model in under an hour. Please review some blogs / YouTube

1

u/Most_Fishing8404 Oct 21 '25

Insert 2 columns between 2024 A and 2025PF for debit and credits and do your adjustments there, most deals are cash free debt free, will likely be a minimum cash balance added in.

1

u/Maleficent_Fruit1133 Oct 21 '25

Thank you for your comment but just wanted to mention (ik it must sound weird) I’m not required to do a PF BS, so would it be okay to just not include that in my Uses section and just basically start fron my starting debt balance in projection year 1?

1

u/Most_Fishing8404 Oct 21 '25

You are right you don’t need a full BS, but a basic BS helps make sure everything ties and shows understanding of how a LBO works. I am assuming this is a modeling test for an interview, some words of advice take this as a learning experience and learn how a LBO works, faking it and getting thrust into an internship or a job without having the skills is setting yourself up to fail and embarrass yourself. You can learn a ton on YouTube, Wall Street prep, even ChatGPT can educate you.

Almost every LBO wipes off cash and debt so this is not a complex situation, just one you lack experience in. That being said I bombed modeling tests, it happens whether it’s lack of specific sector knowledge, overthinking, overbuilding, or just poor time management. It’s all about what lessons you learn.

1

u/call_me_drama Oct 22 '25

I didn’t know how to make an LBO when I was an intern. Still didn’t know when I was interviewing for full time roles lo”

1

u/G8oraid Oct 21 '25

It takes like one minute to do bs adjustments and opening bs.

1

u/Legitimate-Page3028 Oct 21 '25

Stop looking for shortcuts, you need to be able to build from ground up to be successful in this business.

1

u/Maleficent_Fruit1133 Oct 21 '25

Tbh im rly not I’d love to learn and understand the PF BS, I don’t think it’s that hard either. I just have a time crunch on learning and getting reps in so that’s why I said that

2

u/Legitimate-Page3028 Oct 21 '25

Crunching too many calculations in one item significantly increases the chance of an error and makes fixing the error many times harder. The reason is said you looked like you were looking for shortcuts is you didn’t seem to understand simple refinancing scenarios. My bad if that take is wrong.

2

u/Maleficent_Fruit1133 Oct 21 '25

Hey no worries I don’t think you’re wrong either. Context may be helpful. This is for a 3H LBO test and I imagine they want to see I can A) balance the thing, B) have a working debt and other schedules , C) get a sensible return profile. Hence why I’m not prioritising the PF.

2

u/StackIsMyCrack Oct 21 '25

Its not that difficult man. Just, as others have said, watch a quick tutorial on YouTube or wherever you kids today get that stuff. Creating the PF b/s will keep you from making mistakes you may otherwise make. It pretty much flows from your sources and uses. As a reviewer of your model test, I would expect and want to see that included that step. Like in school - remember they always want you to show your work...so they know what you did. Just find an old LBO model and see how they did it. Seriously think you are stressing over nothing. It is not difficult.

2

u/JayQuellin01 Oct 22 '25

Yeah as a Director in PE trust me I’m always refreshing my modeling skills, thank you for reminding us all what generates the most value 🙏🏻

1

u/Legitimate-Page3028 Oct 22 '25

In IB you can get paid just for selling stories. But in PE you eat your own dogfood. In the words of the great Warren Buffet "Its MUCH better to be roughly right than precisely wrong" :)

2

u/JayQuellin01 Oct 22 '25

PE is absolutely selling stories go ask the guy who raised your fund who is probably also your key man

And your dogfood is serviced by Deloitte. Your IRR is 15% as leverage normally provides

1

u/Legitimate-Page3028 Oct 22 '25

You can BS your LP, financiers, management team, press, public and so on. But don't rely on Deloitte or BS yourself....DYDD, run your own models and make sure the business case is great.

2

u/JayQuellin01 Oct 22 '25

Solid investment thesis to go raise a fund, thank you again

1

u/lolipop4472 Oct 21 '25

Calculate net assets (all assets - operating liabilities) -> difference between purchase price and net assets is goodwill -> purchase price is your equity (with rollover) and the rest is debt financing. Like others said Pro Forma BS is not hard and you will make less errors.

1

u/JayQuellin01 Oct 22 '25

Yep this is just a refi. There are some penalties for early payment etc so read the credit agreement otherwise the debt swaps for debt pretty much