Steps for producing a valuation for a bank loan to a private company:
- Gather and review financial and legal documentation.
- Note key loan parameters such as: interest rate, maturity date, type of loan (bullet or amortizing), first or second lien, financial covenants, up-front and other fees, pre-payment penalty.
- Note key financial performance parameters: EBITDA, income, margins, cash flow, balance sheet (historic, current and projected).
- Analyze key financial ratios: leverage, interest coverage, loan to value.
- Perform DCF analysis.
- Compare company to similar publicly traded companies.
- Compare loan to publicly traded similar debt instruments.
- If the company is distressed, determine the value of its assets.
- If the company is in bankruptcy, determine the probability and timing of recoveries.
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