hard · Private Credit underwriting-credit-analysis
A direct lender underwrites a $200M unitranche to a software business at 6.0x EBITDA. The sponsor's CIM presents Adjusted EBITDA of $33.3M, including $8M of 'run-rate synergies' from an acquisition closing concurrently and $5M of capitalized internal-use software development costs that are added back as non-cash. The lender's own analysis confirms the synergies are real but require $6M of one-time integration cash spend over 18 months not yet incurred, and that the capitalized software reflects genuine ongoing maintenance development.
Holding the 6.0x entry multiple as a constraint, what is the most defensible underwritten leverage on a fully-loaded basis?
- Roughly 7.6x, because the $8M of synergies remain unproven pre-close and the $5M software add-back inflates cash generation, so both should be stripped from the underwriting base
- Roughly 7.4x, because the $5M capitalized software represents recurring cash development that should reduce EBITDA, while phased synergies net of integration cost are largely creditable
- Roughly 6.8x, because only the $6M of one-time integration cash spend should be deducted from the presented Adjusted EBITDA as a direct charge against the synergy benefit
- Roughly 6.0x, because the confirmed real cost synergies and recurring non-cash add-backs are both market-standard adjustments, so the presented Adjusted EBITDA figure stands fully as underwritten
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