medium · Corporate Credit Analysis credit-metrics
A fictional utility, AquaPower, has $2,500M in debt and $500M in EBITDA. Its FOCF conversion from EBITDA is 30%.
How would its deleveraging capacity compare to a software firm with $1,750M in debt, $500M in EBITDA, and 85% FOCF conversion?
- They have equal capacity because their EBITDA is identical at $500M.
- The software firm has higher capacity; its FOCF/Debt is roughly 24% versus 6% for the utility.
- The utility has higher capacity because it can defer all its capex indefinitely.
- The utility has higher capacity because its debt/EBITDA is 5.0x while the software firm is 3.5x.
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