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Cengage Learning: Can Apax Partners Salv...

Chaplinsky, Susan,...

Case

Cengage Learning: Can Apax Partners Salvage This Buyout?

Chaplinsky, Susan; Marston, Felicia C.; Smith, David C.

F-1727 | Published February 10, 2015 | 19 pages Case

Collection: Darden School of Business

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This case investigates the issues involved in a private equity (PE) firm’s decision to invest in the debt of a distressed leveraged buyout. The analysis has been purposefully simplified to involve only two classes of outstanding debt, senior debt and junior debt, so that students do not need to have detailed knowledge of the bankruptcy process to complete the analysis. The main analytical task requires students to compute the expected internal rate of return for two debt-investment strategies. This case has been successfully taught in a second-year elective course covering entrepreneurial finance and PE, and in an undergraduate course on PE. The case is appropriate for use in classes on PE, debt restructuring, advanced corporate finance, or deal valuation.

• To familiarize students with trends in the buyout market. There has been substantial growth in credit-oriented PE funds over the past 10 years, and these firms increasingly look for opportunities to invest in debt and other credit arrangements. • To familiarize students with the opportunities that arise from the secondary trading of debt instruments.