Homework $3$: Capital Structu

re Trades

Bigtan Corp has three debt instruments outstanding with the following features:

Rate Size Maturity Price Call Price Call DateSr. Secured Loans SOFR$+1005002/23/202695100$ anytimeSr. Unsecured Bonds $5\mathrm{.}750\%1,5006/26/2029821018/1/2028$Subordinated Bond $7\mathrm{.}875\%2,0004/24/20278510510/24/2026$Teresh Capital Partners took Bigtan private two years ago at $8\mathrm{.}0$x trailing EBITDA of $$750$

million investing $$2$ billion of equity in the deal $($to former shareholders$)$ and $$4\mathrm{.}0$ billion of new

debt all issued at par. Since then, performance has deteriorated and trailing EBITDA is down to

$$450$ million.

Answer all the following $($each question is independent$)$

$1.$ What is the yield to maturity and current yield of each instrument? $($assume a flat SOFR

at $4\mathrm{.}80\%)$

$2.$ What were the leverage multiples at acquisition and what are they now $($face and

market$)?$

$3.$ You want to buy subordinated bonds believing they will tighten by $250$bps one year from

trade date exactly. What is your expected exit price and yield on the trade?

$4.$ Teresh announces a sale of Bigtan to an investment grade company who will assume all

the liabilities of Bigtan. The buyer$$s debt trades at $3\mathrm{.}5\%$ yields to maturity across its

curve. Where are Bigtan$$s three securities quoted immediately after the announcement?

$($ignore the deal risk and the time to closing$).$

$5.$ Unsure whether the company can recover, you are using the following price

assumptions in your scenarios: