medium · Corporate Credit Analysis
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.
Sign up free to see the explanation and track your rank →
More Corporate Credit Analysis practice
- Apex Manufacturing has a total exposure at default (EAD) of… — What is the annual expected
- What is the company's Funds From Operations (FFO)?
- Which statement best reflects the credit risk synthesis?
- A credit agreement requires a borrower to maintain a Net Lev… — What type of covenant is t
- Using the Merton structural model intuition, if a company's equity volatility (sigma_V) in
- What is its CET1 ratio?
- If EBITDA is $150M, what is the entry leverage multiple?
- What is its EBITDA/Interest coverage ratio?