Project Tarnbrook — LBO Financing Feasibility
A 1.5-hour Leveraged Finance / Financing Feasibility case study with a complete model answer
Modeled After
Deutsche Bank
Leveraged finance feasibility module: two-scenario sources and uses with pro-forma capitalization run at 5.0x with preferred against 5.8x without, supported by a two-page recent sector LBO capitalization screen and no valuation exhibit at all
Structure and exhibit set are modeled after Deutsche Bank. The company, the financials and every figure in this case are entirely our own.
The Situation
Tarnbrook Packaged Foods Holdings, Inc. is a US packaged foods platform: shelf-stable soups, broths, canned vegetables and private-label center-of-store product, sold to grocery, club and foodservice.
Tarnbrook Packaged Foods Holdings
- Sector
- Packaged foods — shelf-stable soups, broths, canned vegetables and private-label center-of-store product sold to grocery, club and foodservice
- Size
- Geography
- United States; four domestic plants across Ohio, Indiana, Georgia and Texas
- Ownership
- Situation
The Prompt
Tell us whether either structure clears.
Build both sources and uses and both pro forma capitalizations side by side.
Supporting Materials
What you are handed at the start of the case, in the format a real process would use.
What You Have to Produce
The deliverables, in the order the committee will read them. The exercise runs 90 minutes.
PART 1
Sources and uses at close, both structures
PART 2
Pro forma capitalization, on both earnings bases
PART 3
The five-year debt schedule, for each structure
PART 4
Section 163(j) and cash taxes
PART 5
Credit statistics on five bases
PART 6
Screen the financing comparables yourself
PART 7
The covenant package, the flex and the term loan against the notes
PART 8
The feasibility conclusion, and what would have to change
How to Approach It
The order a strong candidate works in, and why. This is the shape of the answer — the finished answer deck and Excel model are in the solution set below.
- 01
Decide the denominator before you build anything
- 02
Build the fee load, then let the equity check fall out
- 03
One structure's column, filled right, then copied down
- 04
Do the 163(j) block properly, not with a flat tax rate
- 05
Screen the extract as arithmetic, not as opinion
- 06
Test both structures against the market, and say what it shows
Key Concepts
The ideas this case is built on. Know these cold and the case becomes a question of execution rather than knowledge.
The two earnings bases
A sponsor quotes leverage on its Adjusted EBITDA. An arranger underwrites on the earnings it is prepared to credit today, which excludes savings that have been projected but not yet reported. The two figures are both defensible and they are not the same, so every multiple struck on them differs — and on a five-times structure, a few percent of earnings is close to a quarter of a turn. Quoting one basis without saying which one you are on is the single easiest way to be wrong about whether a financing clears.
Equity contribution as a market test
Sponsors and lenders both watch total leverage, but the number a syndicate desk uses to sanity-check a new capital structure is the equity contribution: common equity and rollover as a share of total capitalization. It is a different test from leverage because it moves with the fee load and with anything sitting between the debt and the common. Whether a preferred strip counts toward it is a judgment, not a convention, and the answer changes with where the instrument sits and what it can do if it is not paid.
Holdco PIK preferred
Preferred equity issued by a holding company above the borrower, outside the credit agreement and outside the indenture. It is structurally subordinated to every dollar of debt, carries no cash coupon, has no maintenance covenant and no cross-default, and accretes at its rate until it is repaid. Lenders will often credit it as equity for a contribution test because it cannot cause a default. That does not make it cheap: it accretes ahead of the common, and at a mid-teens rate over a five-year hold the accreted balance is a large multiple of what was placed.
Section 163(j)
The US limit on the deductibility of business interest. For tax years beginning after December 31, 2024 the limit is business interest income plus 30% of adjusted taxable income computed on an EBITDA basis, and disallowed interest carries forward indefinitely. Once a borrower's interest exceeds the limit, additional interest buys no shield at all, so the marginal turn of leverage costs its full pre-tax coupon. A model that tax-effects interest at a flat rate cannot see that and will understate what the extra debt costs.
Fixed charge coverage against interest coverage
Interest coverage is Adjusted EBITDA over cash interest and it ignores everything that is not interest. Fixed charge coverage subtracts capital expenditure and cash taxes from the numerator, and the version the incurrence test is usually written on adds mandatory amortization to the denominator. When a case's defining feature is a large capital expenditure line or a tax bill shaped by a deduction limit, no coverage statistic that ignores it can stand alone. Quote the ratio the counterparty sizes on, not the flattering one.
Maintenance, springing and incurrence tests
A maintenance covenant is tested on a schedule and failing it is a default. A springing covenant is a maintenance test that only applies once a stated condition is met, usually revolver utilization above a threshold. An incurrence test is measured only when the borrower wants to do something — borrow more, pay a dividend — and failing it blocks the action rather than causing a default. A structure can close above an incurrence level without being in breach of anything, and for a platform whose growth model is tuck-in acquisitions that is still a real cost.
Market flex
The arranger's contractual right to move pricing within stated limits to clear the market: additional spread on the loan, additional original issue discount, additional coupon on the notes, and a permitted reallocation between tranches. Flex is a term of the commitment, not a sensitivity a modeler chose to run, and the uses of the transaction do not move when it is exercised — so every dollar of additional discount lands on the sponsor's equity check and every basis point of additional spread lands on coverage.
Screening a financing comparables set
A raw extract of recent capitalizations is not a comparable set. Domicile, buyer type, whether control changed hands, the loan format and the size band all have to be applied before a median means anything, and each exclusion should be defensible in a sentence. Look at what screening moves and what it does not. A screen that barely shifts the median can still transform the outer bound of the set, and which of those two statistics a feasibility test is written against is a decision.
Term loan B against senior unsecured notes
The loan is floating, secured, amortizing, prepayable through a sweep, covenant-lite with a springing revolver test, and bought by collateralized loan obligations and loan funds. The notes are fixed, unsecured, a bullet, non-call for a period, incurrence-only, and bought by high yield funds. The loan is normally the cheaper of the two and it is the tranche that deleverages, because the sweep and the amortization both attach to it. What the fixed coupon buys is rate protection and what it costs is the inability to refinance into a better market until the call date.
What Makes It Hard
The specific traps in this case — the places candidates lose the assessment without noticing.
Check Your Answer
Type the figures you produced and find out how many are right before you open the worked answer. You get a verdict and, where you are off, a pointer to the part of the build to re-check — never the number itself. Everything you type stays on this device.
How to type a figure. Digits, with an optional unit: 1,234.5, $1,234.5, 2.6x, 21.4%. For a negative use (20.0) or -20.0. Enter as many decimals as you carried — precision is never penalised.
What the Case Asked For
The arithmetic is only half of it. Tick off what you actually produced — this half is yours to score, because nothing can grade a written recommendation from a checkbox.
The Model Answer
The worked answer in full: answer deck and Excel model, built the way a banker would actually build them. It is a reference, not a submission — a strong answer under the clock is far shorter.
What the Solution Covers
- —Two-scenario sources & uses
- —Pro-forma capitalization with and without preferred
- —Sector LBO financing comparables screen
- —Leverage and coverage capacity
- —Term loan versus high yield trade-offs
- —Market flex and pricing
Answer Deck
Full model answer, banker-formatted
Upgrade to Diamond
Sign up and upgrade to Diamond to unlock the answer deck, the Excel model and the audio walkthrough.
Get StartedThe Excel Model
The model is linked and tied out end to end — every schedule, every formula and every check, in the file itself.
Downloads are available to Diamond members
Excel Model and PowerPoint Deck and Answer Deck (PDF) — yours to open, edit and rebuild
Walkthrough
A conversational walkthrough of how to approach the case under time pressure — where to start, what to cut, and how the recommendation gets defended.
Audio Walkthrough
How to approach Project Tarnbrook — LBO Financing Feasibility
60-second preview — upgrade to Diamond for the full walkthrough
Frequently Asked Questions
What is an LBO financing feasibility case in an investment banking interview?
A timed exercise in which the purchase price is already agreed and you are asked what the credit markets will fund at it. You build the sources and uses and the pro forma capitalization for each proposed structure, run the cash flow to see what leverage and coverage it supports, screen a set of recently cleared comparable capitalizations, price whatever flex the commitment papers hold, and reach a conclusion. It is a leveraged finance staple because it grades what a syndicate desk will actually clear rather than what return a sponsor could earn.
Why is there no valuation exhibit in this case?
Because the price is a given. The definitive agreement is signed at $2,600.0mm and the exercise is about funding it, so there are no comparable companies, no precedent transactions, no discounted cash flow, no cost of capital and no football field anywhere in the deliverable. Real leveraged finance feasibility modules are built this way, and a valuation page answers a question the client did not ask, with time that was needed elsewhere.
Should a holdco PIK preferred count as equity?
It depends who is asking and what for. For an equity contribution test a lender will often credit it, because it sits above the credit agreement, carries no cash coupon and cannot cause a default. For the sponsor's own economics it is the most expensive money in the structure: it accretes ahead of the common at a rate no debt tranche charges, and over a five-year hold the accreted balance is a large multiple of what was placed. A strong answer scores the contribution test both ways, says which basis it thinks a lender applies, and then says the uncomfortable half out loud.
How much of a financing feasibility answer is the comparables screen?
More than most candidates expect. The leverage a structure carries only means something against what the market has recently cleared in the same sector, so the screened set is the yardstick every test in the case is written against. That makes the screening criteria — domicile, buyer type, control, loan format, size band, announcement window — the real work rather than housekeeping, and it makes the choice between the median and the outer bound of the surviving set a real decision. Screen carelessly and every downstream conclusion inherits the error.
What does market flex actually do to a structure?
It moves the pricing without moving the uses. Fully exercised it adds spread to the loan, points of original issue discount at close, and coupon to the notes — so the additional discount is funded out of the same sources as the purchase price and lands on the sponsor's equity check, while the additional spread and coupon land on first-year coverage. That is why flex belongs in the base analysis rather than in a sensitivity appendix: it is a right the arranger holds, and a structure that only clears if no flex is exercised has not really cleared.
What separates a strong candidate from an adequate one here?
Both build a debt schedule and both compute leverage. The difference shows in five places: stating leverage on the lender's earnings basis as well as the sponsor's rather than taking Adjusted EBITDA as given; modeling the interest deduction limit explicitly instead of applying a flat tax rate; screening the comparables set as arithmetic and then noticing what the screen moved; quoting the coverage statistic that reflects the company's own capital intensity rather than the flattering one; and being willing to write down that a structure does not clear, with the size of the change that would make it clear, solved from both ends and agreeing.
About This Leveraged Finance / Financing Feasibility Case Study
Leveraged Finance / Financing Feasibility case study for investment banking interviews. 90-minute format covering two-scenario sources & uses, pro-forma capitalization with and without preferred, sector lbo financing comparables screen. Includes the full prompt, a model answer deck, a tied-out Excel model and an audio walkthrough.
This case study sits in Investment Banking, under Leveraged Finance. Every case ships with the full prompt, the supporting materials, a complete model answer and an audio walkthrough of the judgment behind the recommendation.
90-Minute Format
The time limit a real assessment would give you
Answer Deck
Included in the model answer
Excel Model
Included in the model answer
Audio Walkthrough
How to approach the case under time pressure
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