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FT - Private equity firms slash use of risky debt tactic to fund payouts "So-called net asset value loans used to pay dividends fell by about 95% during the second half of last year following heightened criticism from investors, according to 17Capital. NAV loans, which are collateralised by the individual investments in a fund and can equal as much as 20% of the fund’s overall value, have enabled firms to extract cash from their portfolios without having to sell assets in difficult markets. Vista Equity Partners, HG Capital and Carlyle Group used the loans to pay dividends in 2022 and early 2023. Although private equity funds have long loaded debt on to portfolio companies to allow them to extract dividends, payouts to shareholders funded by NAV loans are considered riskier. . . as loans cross-collateralise the fund’s investments. Richard Sehayek, a managing director at private credit group Ares who leads their fund finance business, said firms were primarily borrowing against their funds to finance acquisitions or pump money into existing portfolio businesses in need of fresh capital. Firms had largely stopped using it for dividends, he said." https://lnkd.in/ephhJZ39

Complete Private Equity (LBO) Financial Model   This is a professional financial model which performs a thorough assessment of a private equity project with debt leverage. The model is built to all standards of private equity and investment banking industry.   Key features of this model:   -     Covers in detail all stages of a private equity investment -     Produces three financial statements and a detailed return analysis -     Makes a granular analysis of the target company (revenues, cost of sales, fixed overhead, working capital, capex, debt financing) -     Performs a deep sensitivity analysis and can handle up to seven scenarios (you can change scenarios from any sheet) -     Makes project valuation under several methods -     Includes professionally designed magazine-quality charts   The model is accompanied by a detailed text guide providing user instructions, explaining how the model functions and revealing tricky Excel issues.   1. Acquisition   At the acquisition stage, you can define the entry multiple and the purchase price. If the project is leveraged, you can define the loan portion (LTV ratio) and split the loan funding into a credit line and bridge (mezzanine) debt. You can also set the amount of transaction fees. It is assumed that the investment target company sells up to seven products. The model takes historic actuals and makes projections related to prices, volumes, overhead costs, capex, working capital assumptions, other financial parameters.   2. Refinancing   At some point you might refinance the acquisition loan with a new loan under better terms, after the project is stabilized and the risk profile of it becomes more conservative. You can also refinance with higher leverage and distribute the resulting extra cash to the investors. The model shows both refinancing scenarios and allows to set the moment of refinancing and the conditions of a new loan.            3. Exit   At exit stage, you can define the year of exit, exit multiple and transaction fees. You can also choose the method of valuation (EBITDA multiple or terminal growth under the Gordon’s model).   The analysis is supported by the charts which include a valuation bridge chart, valuation ranges under different methods (a “football field” chart), income statement and cash flow bridge chart (for the target company) and others illustrating operating performance and debt service.   Pricing: 99 USD Link: https://lnkd.in/eTH8-nTe   #privateequity, #LBO, #leveragedbuyout, #financialmodeling, #investment, #funding, #valuation, #investmentbanking, #mergersandacquisitions, #jointventures

Business owners are increasingly turning to mezzanine debt-based, leveraged dividend deals as a stopgap measure for liquidity in lieu of selling into a lukewarm market. This makes complete sense given the abundance of debt capital in the form of unitranche financing, mezzanine debt and structured equity. #MezzanineDebt #CorporateFinance #CapitalStructure #PrivateEquity #DebtFinancing #BusinessFunding #InvestmentStrategy #LeveragedFinance #StructuredFinance #FinancialLeverage

Equity investments are black or white, and this binary decision means that you are giving up a percentage of your company at a certain valuation. By contrast, debt financing has many SHADES of GREY. Tradition Meets Future helps you to recognise these shades and to manage the process. Our added value can be summarised as follows:   - Advice on how to turn an equity story into a credible credit story, thereby avoiding any later pitfalls. - Summarizing and condensing the credit story into a borrower fact-sheet that our investors are familiar with and use as pre-checked due diligence documentation. - Management of the entire debt financing process in all its complexity with countless loan-specific requirements, including: => interest payment structure, => maturity, => amortisation schedules, => financial and non-financial covenants, => collaterals & guarantees, prepayment terms, reporting. => Enabling the company’s management to concentrate on their day-to-day operations. => Direct access to the most suitable debt providers among our 90+ financing partners. => A team with over EUR 3bn of experience in debt structuring and more than 100 years of investment experience. => Commitment & Focus: Tradition Meets Future is committed to supporting founders with non-dilutive financing as we are founders ourselves! Dr. Gerald Leitner, Rachel Lawson, Alexander Hammond, Bruce Prior, Theodor Volhard, Niels Richter, Dr Stefanos (Stephen) Capsaskis, Dr. Jürgen Allerkamp, Johanna Kunze, Dr Sven Janssen

Business owners are increasingly turning to mezzanine debt-based, leveraged dividend deals as a stopgap measure for liquidity in lieu of selling into a lukewarm market. This makes complete sense given the abundance of debt capital in the form of unitranche financing, mezzanine debt and structured equity. #MezzanineDebt #CorporateFinance #CapitalStructure #PrivateEquity #DebtFinancing #BusinessFunding #InvestmentStrategy #LeveragedFinance #StructuredFinance #FinancialLeverage

When funding a deal with risk, mezzanine debt lenders expect to receive a return enhancement known as a warrant. Despite its ominous -sounding name, the warrant is merely a contract right to participate in the future valuation gains of the company. Click to learn more on mezzanine debt and the growth company funding conundrum. #mezzaninedebt #mezzaninedebtlender #lending #middlemarket #mezzaninedebtwarrant #funding #refinancing #business #finance

When funding a deal with risk, mezzanine debt lenders expect to receive a return enhancement known as a warrant. Despite its ominous -sounding name, the warrant is merely a contract right to participate in the future valuation gains of the company. Click to learn more on mezzanine debt and the growth company funding conundrum. #mezzaninedebt #mezzaninedebtlender #lending #middlemarket #mezzaninedebtwarrant #funding #refinancing #business #finance

Understand the incentives to drive a successful debt or equity fundraise/exit, let me explain... Capital comes in many forms based on what type of instrument it is and more importantly, WHO is providing it. Funds, Banks, VCs, PEs, etc. all have very different incentive structures and you must study and understand these incentives in order to capture the explicit and implicit rules of engagement of a given transaction. For example, a bank will lend you money as a way to attract your deposits; not because they want to solely be in the lending business. Therefore, they will give you less money than a debt fund, all things equal, and will want it back sooner (amortization). Whereas, a debt fund wants to maximize their return on investment (MOIC/IRR) and so will want to give you as much money as possible for as long as possible. Therefore, if you are doing a debt raise, decide if you are optimizing for cheapest price or most and longest capital, it will help you orient your conversations and your pitch. On the equity side, VCs are in the camp of burn and hypergrowth. They want to see power law outcomes in their portfolios so are incentivized to encourage aggressive expansion plans to their portfolio companies. Private equity firms want to grow their companies PREDICTABLY and are seeking mid-20s returns across their portfolio with very few write offs, if any. This typically means making bolt-on acquisitions to drive growth and aggregating the revenue and EBITDA and cross-selling to expand customer and enterprise value. In order for them to equity-efficiently acquire companies, they typically use debt based on a multiple of EBITDA. Therefore, depending on the business opportunity and risk level you are comfortable with, hit the metrics you need to in order to give yourself the best chance at closing the deal. My name is Kevin Houston, I help founder-controlled software companies find alternative sources of capital.

Debt and equity capital are two forms of financing that companies use to raise capital for various purposes, such as expanding operations, modernizing technology, or meeting working capital needs. Debt Capital: - Borrowed funds from lenders, such as banks, bondholders, or creditors - Requires regular interest payments and repayment of principal amount - Examples: Loans, Bonds, Credit Lines - Advantages: Retain ownership, tax benefits, fixed interest rates - Disadvantages: Repayment obligations, interest expenses, risk of default Equity Capital: - Funds raised by issuing ownership shares to investors - No repayment obligations, but shareholders share profits and risks - Examples: Common Stock, Preferred Stock, Venture Capital - Advantages: No debt repayment, access to large capital amounts, shared risk - Disadvantages: Dilution of ownership, shared control, uncertain returns The optimal capital structure for a company typically involves a mix of both debt and equity capital, depending on factors such as the company's industry, growth stage, and financial situation.

New Post: Debt Financing: Fueling Business Growth and Operations Introduction Debt financing is a crucial strategy for businesses seeking capital to fund their operations, expansion, and strategic initiatives. By borrowing funds from external sources, companies can access immediate capital while preserving ownership. In this white paper, we explore the key concepts, advantages, and methods of debt financing. Understanding Debt Financing Definition: Debt financing involves […] Naviti Management https://lnkd.in/eKNhA4cK