Private Equity Transaction & Debt Covenant Model
Pharma Brands Inc. — Special Dividend Recapitalization
6
Model sheets
$3.25B
Revenue base
5 / 5 ✓
Covenant years
0.0x
Debt/EBITDA exit
97.0x
EBIT/Interest peak
Problem
Pharma Brands Inc. is evaluating a $1B special dividend payment funded by a leveraged recapitalization. The transaction requires a comprehensive financial model to project the company's ability to service new debt (term loan + revolver) while maintaining compliance with restrictive debt covenants over a 5-year horizon.
Approach
Built a fully integrated 6-sheet Excel model: Transaction Summary, Projected Income Statement, Balance Sheet, Cash Flow Statement, Debt Schedule (term loan + revolver with automatic cash sweep), and RE/Fixed Assets Schedule. Revenue assumptions drive through all statements with dynamic debt paydown from excess cash flow.
Validation
Dual covenant testing: Total Debt/EBITDA (max 3.0x stepping to 1.5x) and EBIT/Interest Coverage (min 6.0x stepping to 12.0x). Both covenants tested across all 5 projected years. Sensitivity tables tested revenue growth and margin assumptions against covenant thresholds.
Output
Model projects full revolver paydown by 2026 ($763M → $0). All debt covenants pass across the entire projection period. Net income grows from $200M to $331M. Cash position rebuilds to $133M by 2026. EBITDA margin improves from 11.0% to 13.0%.
Limitations
Revenue growth assumptions (5% → 4%) and margin improvement targets represent scenario-based inputs, not audited projections. The model does not account for macro shocks, management execution risk, or refinancing risk at debt maturity. Working capital assumptions use simplified DSO/DIO/DPO ratios.
Next Improvements
Monte Carlo simulation on revenue and margin inputs to stress-test covenant compliance across probability distributions. Integration of a dynamic refinancing module to model takeout options at year 3 maturity. Expanding sensitivity analysis to a multi-variable tornado chart.