medium · Private Credit underwriting-credit-analysis
A borrower proposes adding back $1.2 million in 'Extraordinary supply chain disruption losses'. As a Director of Credit, you note that similar disruptions occurred in three of the last five years.
How should this be treated in a conservative 'Cash EBITDA' bridge?
- Reject the add-back because the frequency indicates these are recurring operational costs.
- Accept the add-back as supply chain issues are exogenous to the business model.
- Capitalize the $1.2 million as an intangible asset to be amortized over five years.
- Accept the add-back but increase the interest margin by 50 bps to compensate for the risk.
Sign up free to see the explanation and track your rank →
More Private Credit underwriting-credit-analysis practice
- If the investor hedges the currency risk using forward contracts, what is the approximate
- A lender is determining the maximum debt capacity for an LBO… — What is the maximum suppor
- What is the Enterprise Value?
- If the sponsor uses $360 million in total debt, what is the entry Net Debt / EBITDA levera
- A credit agreement includes a 75% 'Excess Cash Flow Sweep'.… — How much of this cash must
- If the fund provides a $200M senior loan, how does the inclusion of add-backs affect the r
- If the pool suffers a 2% annual default rate with a 65% recovery rate, what is the adjuste
- If the cumulative probability of default over a 5-year investment horizon is 8%, what is t