maexhibitsmodelslbo_short_htg.doc kekiehl 4 Apr 2013 5:43 /10Page 1 of 10LBO Short Form ModelHow To GuideGett ing StartedKey Notes About Model LayoutThe worksheets in the model are: Descripti onexpla ins key assumpti ons made by the model and contains the“lastmodified date, ” so you know if you have the latest vers ion of the model (whe n start ing a new project, always dow nl oad a fresh vers ion from the web); also contains a log ofrevisi ons to the model LBO LBO model with in puts for key drivers and assumpti ons, capital structure, project ions, etc.; the model is split into 7 pages:1. Key Drivers & Assumpti ons, Warnin gs, Modeli ng with Circular Formulasthe“ Key Drivers & Assumpti ons” box is where you in put some key data such as thepurchase price, opti ons, and bala nee sheet in formati on and make some key choices for assumpti ons about the exit (ow nership and multiples), goodwill, fees, and the use of recap accounting; the“ Warnings ” box will highlight any particular issues that arisebased on the in puts and assumptions you have entered, for example, to check with experts regard ing the tax deductibility of PIK debt with a high coup on; and the“ Modeling with Circular Formulas” box notes some key issues in using circularformulas and contains a fix in case the circular formulas get stuck2. Summary Page contains the sources and uses of fun ds, summary credit stats,and equity returns (everything you need to see whether your LBO“ worked ” ); this iswhere you in put your new capital structure and in terest rate assumpti ons and where you enter your “ Rules of Thumb ” constraints on credit stats and returns3. In come Stateme nt contains the historical and projected in come stateme nt andoperati ng assumpti on in formati on; this where you in put your 5 year project ions and the assumpti ons to build the projecti ons out from years 6 to 10; work ing capitalin puts are in the assumptions at the bottom of the page4. Cash Flow Stateme nt contains the projected cash flows in cludi ng cash taxben efits from tax-deductible goodwill and loss carryforwards; this is where you in put capital expe nditure projectio ns5. Capital Structure and Credit Statistics contains the projected capital structureand result ing credit statistics6. Equity Returns details the calculati on for equity retur ns on a traili ng EBITDA andforward P/E multiple basis7. Detailed Own ership Calculati on details the calculati on for spon sor, sub. debt,man ageme nt and other equity own ership at exitmaexhibitsmodelslbo_short_htg.doc kekiehl 4 Apr 2013 5:43 /10Page # of 10LBO Short Form ModelHow To GuideRunning the ModelThis short-form LBO analysis is designed for valuation purposes i.e., to determine (ina quick and dirty fashion) what a financial sponsor would be willing to pay for the target. The object of the analysis is to maximize purchase price while staying within the constraints of an appropriate capital structure and maintaining sufficient equity returns for the sponsor. As a first cut, these constraints will be laid out on the“ Rules of Thumb ” page available on theLeveraged Finance home page. Once you have the model up and running, you will most likely want to consult with Leveraged Financeto determine if you have an appropriate capitalstructure for your particular target.Begin by entering the Key Drivers and Assumptions in the box on the top of the LBO model worksheet. Next, move to page 3 and enter the historical and projected financials for the target. The model is set up to accept 5 years of projections. However, because the amount of bank debt that can be used will be limited by the ability to pay that bank debt off by maturity (typically, 7 or 8 years), the model is set to build out projections for years 6 through 10. To build these projections, enter the assumptions i n the “ Operating Statistics/Assumptions” section of theincome statement. Don t forget to input assumptions for working capital (in the Operating Statistics/Assumptions section) and for capital expenditures (on the Cash Flow Statement page).Return to the Summary Page of the model to layer in the new capital structure using the “ Rules of Thumb ” page. Begin by layering in the maximum amounts of bank debt and subordinated debt as a multiple of LTM EBITDA (see note below on LTM EBITDA). Enter the appropriate costs of debt. Don t forget to enter a cost of debt for the Revolverin the casethat the Revolver will need to be drawn down. Finish the initial draft of the model by entering in the leverage, coverage, and returns constraints from the“ Rules of Thumb ” in the SummaryCredit Statistics and Equity Returns sections of the Summary Page.Now it s time to begin running iterations on the model to maximize purchase price. Check your leverage and coverage statistics. If any fail to meet target guidelines, reduce the amount of debt