medium · Private Equity
An LBO model shows that in Year 1, Cash Flow Available for Debt Service (CFADS) is $28.7M. Mandatory Term Loan A amortization is $33.3M.
How does the model typically resolve this shortfall?
- By drawing on the Revolving Credit Facility (RCF) to cover the mandatory payment, increasing debt at the end of the period.
- By automatically triggering an event of default and handing operational control of the company to the senior lenders
- By increasing the EBITDA add-backs used in the model until the calculated debt coverage ratio meets the required threshold
- By reducing the GP's annual management fee for that fiscal year in order to preserve additional cash within the portfolio company
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