1. Does this transaction make sense for Blackstone? Why is Citigroup seeking to sell the portfolio of leveraged loans? 2. Using the data in the case on default and recovery rates, what is the value of the deal for private equity firms on a discounted cash flow basis? What is the implied IRR? 3. Assess the purchase price using information on CDS spreads. a) Using historical recovery rates, what is the implied probability of default? What is the implied IRR? b) It is useful to note that buying the loan in combination with a CDS on the loan makes an investor's payoffs essentially riskless. What are the annual cash flows from such an investment? How would you discount those cash flows? What is the value of such an investment? 4. In which valuation approach do you have more confidence? Why? 5. Based on your calculations, how attractive is this deal to Blackstone? Note: For calculations, assume that the beta of the portfolio is 0.2, and that the investment is exited in 5 years. Do the calculations per $100 of portfolio face value. Recommended reading: Victoria Ivashina, "Note on the Leveraged Loan Market," HBS No 214-047, (Boston: Harvard Business School Publishing, 2013).