As you are about to head out for the weekend, you receive an email from your VP and mentor which says that you have been staffed to take a look at DXC Technology (DXC). One of the firms large private equity clients Johnson and Associates is interested in making a bid. The email suggest that you reach out to the LevFin desk before everyone is gone to get a better understanding of the possible pricing that would generally go with such a deal.

Item	Guidance
Total Leverage	?
Capitalization	Roughly 3/4 leverage as Term Loan B, remainder as High Yield Bond
Term Loan B Pricing	S+425 / 99 OID 1% Floor
HY Bond Pricing	8.75-9.25% (8yr)
Minimum Equity Check	30%
Exit Multiple	Depends how you recommend running the company!
Deal Fees	$50 million
Financing Fees	Term Loan B 2.25%, Bond 2.75%

DXCs latest 10Q was filed on 2/2/23 so youll have actual results with clean balance sheet data to work with as a starting point. Youll also be using equity research as a guide for your near-term forecast estimates (youre welcome to use any source you wish, as long as you can explain why you chose it), and youll need to make reasonable and supportable assumptions thereafter. DXC managements abilities are very well respected within this industry, and therefore you are to assume some equity for DXC management.

Youll need to think through OCC regulations here. At a minimum, you'll add a check to your model to make sure that 100% of the Term Loan pays down within 7 years or 50% of the total debt pays down over the same period (preferably both check the box). These checks are part of the OCC regulations on leveraged lending. If your model does not pass these tests, its likely the deal will not be approved. What should you do? Decrease total leverage? Or perhaps change the profile of the business to improve near-term cash flow generation (can you do this credibly? The folks at the OCC arent dumb)? Something else?

You realize this may be a longshot; in practice its rare to find a company that checks all of the boxes, generates substantial IRR, and meets OCC guidelines right out of the box. Remember, this is a conversation with Johnson. If the LBO doesnt work as-is, should you cut off the conversation there? Given what you know about key IRR drivers, what topics might you bring up that would potentially make this opportunity more attractive, or is this just a stupid idea?

As the point person on the pitch, you are officially responsible for coordinating the deliverable with your team. The deck will cover the following topics:

1. Situation Overview, where youll briefly bring the team up to speed on the current market environment in DXCs industry, an overview of DXC, and a quick conversation about recent events at the company what should you be highlighting to begin the discussion?
2. Overview of the LBO market
3. A discussion of whether or not DXC is considered a viable LBO candidate. What are the key issues to consider (+/-)?
4. A discussion on how the LBO transaction would work. What price gets the deal done? Whats your view of appetite from the banks? How much debt is available?
5. Summary of Assumptions (Transaction and Financial Projections)
6. LBO Analysis: Summary with commentary. What returns can be realized? Consider the aforementioned OCC leverage checks and implications for making the deal viable
7. Final Recommendation, including a returns analysis
8. Appendix with detailed model outputs

In addition, you make get asked the following questions

1. How do the underwriting processes for these financings actually work in practice?
2. What do you think the credit rating of the levered company will be?
3. Do your financial projections account for any constraints on the business given the increased leverage inherent in this type of transaction?
4. What information would your internal credit committee need to feel satisfied with extending credit? Are other banks likely to shoulder a portion of the financing?