Leveraged Buyouts Essay

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(Table of Contents) 1. 2. 3.LBO 4.TXU 5. LBO 6. (Overview of Leveraged Buyouts) (Mechanics of an LBO Analysis) (LBO Best Practices) (TXU Case Study) (LBO Modeling) (Homework Assignment) (Appendix)


Overview of Leveraged Buyouts


Overview of Leveraged Buyouts

An LBO is the acquisition of a company or division of a company using debt for a majority of the purchase price and equity for the remainder.

The buyer (the LBO Sponsor or Equity Sponsor) borrows the debt portion of the purchase price, typically through public or private bonds and bank loans issued by the company, and contributes the equity portion typically through a private fund Debt is serviced and repaid with the company’s operating cash flows a b The
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This brought first-half sponsor-driven loan volume to $218 billion, up from $111 billion during the first six months of 2006.Given all that’s on the calendar, private equity-related loan volume will handily exceed 2006’s record figure of $234 billion by the end of July. 910 1,270 2,180 2006 1,110 2006 2,340 •Second lien volume has seen a 70% increase year-over-year.2007YTD volume totaled $27.3 billion with the rolling four week average of second lien spreads at 696 bps,versus 704 bps in August. The first/second lien gap widened to 352 bps this week,and is tighter than the 363 bps seen in August. 70% 2007 273 6.96% 7.04% 3.52% 3.63% Market •The number of banks that were active in the retail primary market remained at 77 during the
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