On December 31, 2016, Silver Lane Partners, a private equity firm, acquired the operations of Baezmore Telecom (BT), a company with last twelve months (LTM) EBITDA of $882.7 million at an enterprise value amounting to 8.0 times LTM EBITDA.

On December 31, 2016, Silver Lane Partners, a private equity firm, acquired the operations of Baezmore Telecom (BT), a company with last twelve months (LTM) EBITDA of $882.7 million at an enterprise value amounting to 8.0 times LTM EBITDA.

As part of the deal, all the noncontrolling interests were acquired (at their market value) and all existing debt was refinanced.

To fund the buyout, Silver Lane was able to secure $250 million in debt financing at a 10.0% rate of interest (to be paid annually at each year end on the debt outstanding).

Transaction fees due in cash at the purchase date were $3.0 million, while financing fees due in cash at purchase date totaled $1.0 million.

None of BT's cash balances were used to fund the buyout.

Assuming the debt holders not only received the 10% annual interest payments but also Options worth $50 million at Exit, what are the annual returns of the debt holders?

You may assume interest payments are made at the end of every year, and a 5 year holding period for the debt holders.

Hint: Use the IRR function in Excel.

• 10.0%
• 11.2%
• 13.1%
• 13.7%
• 30.0%