FE - Deal Financing

Question 2

Term A, B & C Debt

Answer 2

All rank equally in liquidation, but assuming firm doesn’t liquidate, A pays out in the shortest term e.g. 6 years, then B, then C which might be 8 years.

Interest rate would be progressively higher from A -> C

Question 3

2nd Lien

Answer 3

Ranks below Term A, B & C, and will have a higher interest rate

Question 4

Mezzanine debt

Answer 4

Has a higher rate than Term & 2nd Lien debt, but has some sort of equity participation built in e.g. convertible debt (debt than can be converted to equity)

Question 5

High yield notes

Answer 5

Have the highest interest rate of the funding sources

Question 6

Equity Finance Exchange Ratio

Answer 6

Acquirer new shared issued = Equity issued/Acquirer share price

Exchange Ratio = Acquirer new shares issued/Target shares bought

Question 7

EPS Accretion/Dilution

Answer 7

Used to see if merger is worthwhile or not. EPS Accretion (increase) means it is worthwhile and vice versa.

(Acquirer net income + Target net income) + Synergies post tax - Deal debt interest post tax = Proforma Net Income

Proforma Net Income/(Acquirer shares outstanding+New shares issued) = Proforma EPS

Compare Proforma EPS to Acquirer EPS and workout the % increase/decrease.
Decrease = dilution, Increase = Accretion