So that’s the first thing we need to consider.Īgain, this is basically the funds that we require minus however much we’ve drawn on through other tranches or other types of equity, so far. And I’m going to anchor the row 105 part of F105 cell, right there. But just to make sure this formula is correct I’m going to select this area of F105 to F106. Now in this case it is simply zero, because developer equity is the first one. row 104 which lists the total funds required), and then we’re going to subtract however much we’ve repaid, so far. So what we’re going to do here is take the minimum between the funds required, which I’m going to anchor, at least the row part of that cell (i.e. It looks a little bit intimidating when you first see it, but it is actually not that difficult to understand. So that’s the basic idea behind the formulas here. We have to look at those, and compare them to how much we actually require, and then what we’ve drawn on so far, in other types of equity or other types of debt. Now there is a problem with that, which is what if we exceed our maximum draw right here? So the other factor we have to look at is how much we have drawn on so far, and what our maximum draw is. So for example, if we’re at the mezzanine line item, we can look at our funds required, and then we can subtract what we’ve drawn on for our developer equity and investor equity, whatever is left, is what we have to draw on for our mezzanine, right here. So for the equity and debt draws here, basically we are going to draw on the equity or the debt in one of two ways.įirst off we can look at the funds required, for the development and operation of this business, of this property really, and then we can subtract however much, we’ve drawn on so far. That’s going to allow the mezzanine investors here to get a higher return, because their debt will be outstanding for a longer time period. And so as a result, we’re going to have to repay other forms of debt first, before we get to the mezzanine. If you think about this accounting-wise, they are going to get a higher return if we end up paying more interest on mezzanine. That, once again is because the mezzanine debt holders are taking the most risk, so they are going to have the highest potential reward. We’re going to start with Term Loan A, then B, then mezzanine. The order of repayment is going to be different. Now we only have approximately $1.8 million of developer equity, so past a certain point, we’re going to have to start drawing on investor equity, and then mezzanine, then the senior notes after that. Ideally, we’d like to use our own funds first the developer equity here, to fund everything that we can. Now to get started with the equity and debt draws remember how this works. So at least this part here at the bottom, for optional debt repayments, is going to be similar to what you’ve seen, before if you’ve been through those models. Because conceptually, the way we set them up, is actually very similar to what you do in an LBO model, when you’re determining the optional debt repayments. And then if we happen to have any extra cash flow available, how much of that we can actually use to repay some of this debt early, which of course is going to help us, the developer or the equity investor in the project, because it’s going to allow us to reduce our interest expense and our capitalized interest on that debt.Īs with much of the rest of this model, if you’ve already been through the LBO models elsewhere in this course, these formulas will seem very familiar to you. In this lesson we’re going to go into our equity and debt draws for this construction project, and you’ll learn how to estimate how much an equity and debt, we’re drawing on each month. If a fund starts to make distributions back to investors before the initial pledge is fully drawn, it is possible that investors will be able to fund future drawdown requests to fulfil the pledge, partially at least, from distributions that have arisen from earlier investments in the fund.Equity, Debt Draws and Optional Repayment Transcript In those instances, once the capital is raised and the transaction is complete, the full amount committed by investors is required by the company immediately. This is the opposite of how a direct investment in a private equity or private debt transaction works. The investors in the fund can therefore expect to have their commitment requested (or 'called') in three instalments over the investment period. The drawdown profile of the fund is that the manager expects to invest a third of the total capital raised over each year of the investment period. For example, an investor pledges an investment of £300,000 in a fund which has an investment period of three years to build a portfolio of underlying investments.
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