How would I find the interest rate on a revolver in a PE deal for a small, niche manufacturing company? Assume this is a pitch, and that there are no public comps available.

Published On - August 6, 2023

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

Since this is for a pitch and not for a live deal, we cannot simply ask the bank lender.

Since there are no public comps, we should look at past LBO deals in a similar sector and see what the past revolver spread was.

For example, we can find the average revolver spread over 3-month SOFR (or 3-month LIBOR before the adoption of SOFR) for small manufacturing companies in a similar sector. Then we can apply this interest spread to the current 3-month SOFR, and project what the future 3-month SOFR will be in the next 5 years to see what the future interest rate will be as well.