Customize Consent Preferences

We use cookies on our website to help you navigate efficiently and perform certain functions. A Cookie is a small piece of data (text file) stored on your computer or mobile device by your web browser. We may use Cookies to personalize the content that you see on our Website and to identify the areas of our Website that you have visited.Those cookies are set by us and called first-party cookies. We also use third-party cookies that help us analyze how you use this website, store your preferences, and provide the content and advertisements that are relevant to you and aide our marketing efforts. Most web browsers can be set to disable the use of Cookies. However, if you disable Cookies, you may not be able to access functionality on our Website correctly or at all.

Always Active

Necessary cookies are required to enable the basic features of this site, such as providing secure log-in or adjusting your consent preferences. These cookies do not store any personally identifiable data.

No cookies to display.

Functional cookies help perform certain functionalities like sharing the content of the website on social media platforms, collecting feedback, and other third-party features.

No cookies to display.

Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics such as the number of visitors, bounce rate, traffic source, etc.

No cookies to display.

Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.

No cookies to display.

Advertisement cookies are used to provide visitors with customized advertisements based on the pages you visited previously and to analyze the effectiveness of the ad campaigns.

In addition to cookies, some information may automatically be collected as you browse our Website, such as type of browser, operating system, domain name or IP address.

No cookies to display.

How we helped an Investment Bank create a model for raising debt and calculating warrants

March 17, 2023

The Context

The client, an Investment Banker was conducting a transaction to refinance the debt of a company in the Artificial Intelligence industry. The public company wanted to financially restructure itself to expand in North America and to manage its debt instruments better – it had 31 loans which provided administrative challenges. The company was to refinance all of its current debt to mezzanine. The client wanted the TresVista team to tailor this deal to suit the needs of multiple stakeholders. Since the output was to be customized for approaching different investors, the clients required the team’s support over and above the usual investment documents – such as the transaction comparables, CIM, and a one-page summary.

The Objective

To create a financial model for raising debt and calculating warrants to be provided to investors due to the high risk associated with the debt.

The Approach

The TresVista team followed the following process:

  • Aligned the company business plan to the US GAAP
  • Created the key elements of the financial model
  • Performed valuation analysis which indicated target company was undervalued compared to its peer comps
  • This implied a significant equity upside possibility which resulted in the addition of warrants, boosting investor IRR
  • Achieved the strategic goal of improving the company’s cash position
  • The final output was provided to the IB to reach out to investors with custom scenarios

The Challenges We Overcame

The major hurdles faced by the TresVista team were:

  • Ensuring the company had sufficient cash reserves to expand to North America while minimizing the fresh debt needed to be raised
  • High returns were demanded by the investors due to the risk and complexity of the transaction
  • Representing the complex components of the model in a simple way that captured investor interest

The TresVista team overcame these hurdles by ensuring the components which made the transaction complex were suitably separated into the Warrant calculations, Debt Schedule and Loan Summary tabs. Post building the necessary tabs, various iterations were tried to arrive at the PIK duration and the number of Warrants to be issued.

Final Product (Sanitized)

The Value Add – Catalyzing the Client’s Impact

  • The TresVista team separated and detailed each key element into the following sections:
    • Loan Summary: Listed each loan with refinance option
    • Debt Schedule: View of refinanced loans and options of PIK interest duration
    • Warrant Calculations: Equity valuation and warrant calculations assumptions for IRR
    • Summary Output: Scenarios for warrant coverage, investor IRR and cash position
  • Modelled PIK interest for the first two years to save cash for the company
  • Provided warrants which captured the equity upside of the company post financial turnaround, ensuring investors achieved their desired IRR

Tags
Share