Musings on Markets

FEBRUARY 27, 2023

While accountants, CFOs and bankers are fond of the book value measure, almost everything in corporate finance revolves around market value weights, including the debt to equity ratios we use to adjust betas and costs of equity and the debt to capital ratios used in computing the cost of capital.

Equity 52

Equity EBITDA Start-ups Net Debt 52

Appraisal Rights

JUNE 5, 2017

In addition, the court found that the exercise of warrants three months prior to the merger pursuant to the Credit Agreement, which resulted in a change to SWS’s capital structure by cancelling debt in exchange for new shares, was part of SWS’s “operative reality” for purposes of the fair-value determination. Conclusion.

Beta 40

Beta Risk Premium Capital Structure Discounted Cash Flow 40

Brian DeChesare

AUGUST 10, 2022

The entire Energy Services vertical is like a “high Beta” play on oil and gas prices. The tricky part is understanding the MLP structure and the tax, dividend, and capital structure differences that it creates.

Banking 94

Banking EBITDA Dividends Equity 94

Valutico

OCTOBER 20, 2022

B = Beta. (Rm DCF WACC—similar to the above except that it calculates a different WACC in each forecast period based on a changing capital structure (D/E) and thus a changing beta in each period. Ce = Cost of Equity. Rf = Risk-free Rate. Rm – Rf) = Equity Market Risk Premium. Cp = Cost of Equity Premium.

Discounted Cash Flow 52

Discounted Cash Flow Terminal Value Weighted Average Cost of Capital Net Present Value 52

Brian DeChesare

JULY 27, 2022

4) Moderate Net Exposure and Beta – Most credit funds are in the middle of the pack here, with Betas to equities and bonds in the 0.4 – 0.5 For example, why might Bond A have a 10% YTM with an 8% coupon rate while Bond B has a 9% YTM with a 10% coupon rate if they have the same ranking in the capital structure?

Equity 52

Equity Start-ups Private Equity Firm Beta 52

Brian DeChesare

SEPTEMBER 13, 2023

Plot Out the Possible Scenarios – And estimate the market value of each Debt tranche and the company’s Equity in the most likely outcomes Create Your Trade – The simplest approach is to long one part of the capital structure and short another, but you could also long or short just one component and use options or CDS to hedge the risk.

Equity 96

Equity Banking EBITDA Start-ups 96

Brian DeChesare

MAY 24, 2023

Capital Structure Trades – Or you could focus on Jacobs’ ~$4 billion in debt and long or short some of their bonds (or use credit default swaps) if you believe its credit rating will change once the deal takes place. But lock-up periods are longer than most long/short equity funds.

Equity 64

Equity Start-ups EBITDA Banking 64