Walk me through how you calculate optional repayments on debt in an LBO model.

First, note that you only look at optional repayments for Revolvers and Term Loans – high-yield debt doesn’t have a prepayment option, so effectively it’s always $0.

First, you check how much cash flow you have available based on your Beginning Cash Balance, Minimum Cash Balance, Cash Flow Available for Debt Repayment from the Cash Flow Statement, and how much you use to make Mandatory Debt Repayments.

Then, if you’ve used your Revolver at all you pay off the maximum amount that you can with the cash flow you have available.v

Next, for Term Loan A you assume that you pay off the maximum you can, taking into account that you’ve lost any cash flow you used to pay down the Revolver. You also need to take into account that you might have paid off some of Term Loan A’s principal as part of the Mandatory Repayments.

Finally, you do the same thing for Term Loan B, subtracting from the “cash flow available for debt repayment” what you’ve already used up on the Revolver and Term Loan A. And just like Term Loan A, you need to take into account any Mandatory Repayments you’ve made so that you don’t pay off more than the entire Term Loan B balance.

The formulas here get very messy and depend on how your model is set up, but this is the basic idea for optional debt repayments.