Project Wexbury — Sponsor Ability-to-Pay
A 1.5-hour Ability-to-Pay Analysis case study with a complete model answer
Modeled After
UBS
Strategic alternatives materials with the LBO as the central analysis: a price by exit-multiple IRR grid, a Potential Sources of Funding sponsor-capacity screen, and high-yield market capacity as the constraint on what the sponsor universe can actually fund
Structure and exhibit set are modeled after UBS. The company, the financials and every figure in this case are entirely our own.
The Situation
Wexbury Building Products, Inc. makes engineered exterior building products for residential repair-and-remodel and new construction.
Wexbury Building Products, Inc.
- Sector
- Engineered exterior building products — fiber-cement siding and trim, cellular PVC trim and mouldings, and composite decking components, sold through two-step distribution into residential repair-and-remodel and new construction
- Size
- Geography
- United States; headquartered in Lynchburg, Virginia, with four domestic manufacturing plants including the newest facility at Orrisdale, Ohio
- Ownership
- Situation
The Prompt
You are an analyst on the sell-side team advising the board of Wexbury Building Products, Inc. The company is private, sponsor-owned and about to be taken to market, and the board wants one question answered before the process launches: what can a financial buyer actually pay?
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
Operating Model & Cash Flow
PART 2
Financing & Credit Statistics
PART 3
Ability to Pay
PART 4
Price by Exit Multiple
PART 5
Sources of Funding
PART 6
Returns & Sensitivities
PART 7
The discussion deck
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
Understand that the debt schedules do not move with the price
- 02
Build one structure end to end before you build three
- 03
Solve backwards from the return, not forwards from a price
- 04
Test every structure against both floors, and quote every basis
- 05
Screen the extract before you quote anything from it
- 06
Answer the board's question, not the valuation question
Key Concepts
The ideas this case is built on. Know these cold and the case becomes a question of execution rather than knowledge.
Ability to pay
The leveraged buyout run backwards. A conventional LBO fixes the price and computes the return; an ability-to-pay analysis fixes the return the buyer must earn and solves for the price. The output is not a view on what the company is worth; it is the most one class of buyer can pay given the leverage the debt market will fund, the price of that debt, the cash the business generates over the hold and the return the buyer's investors demand. That makes it a floor under a sale process rather than a valuation, and the distinction belongs on the page rather than in the analyst's head.
Why the solve is closed form
Sponsor leverage is struck in turns of LTM Adjusted EBITDA, which is known before the price is. So funded debt, the interest it carries, the sweep it supports and the net debt left at exit are all independent of the purchase price. Only the equity check and therefore the enterprise value move. That collapses what looks like a circular problem into one substitution: net proceeds equal the equity check compounded at the hurdle, so the equity check falls straight out of gross exit equity value. The base case where the exit multiple equals the entry multiple is a fixed point, and it resolves by repeated substitution rather than by a goal seek.
Fixed-charge coverage against interest coverage
Interest coverage divides Adjusted EBITDA by cash interest. Fixed-charge coverage charges capital expenditure and cash taxes first and then divides what is left by cash interest. In a business that spends a low-single-digit share of revenue on maintenance capital expenditure the two ratios travel together and it hardly matters which one is quoted. In a business three years into a capacity program that consumes a large share of its Adjusted EBITDA, they can disagree sharply, and the disagreement is the whole underwriting question. A credit committee shown only the first ratio is being shown the flattering half.
Price by exit multiple
The grid that keeps an ability-to-pay answer honest. Holding the exit multiple equal to the entry multiple is the disciplined base case, because a price that only clears the hurdle on multiple expansion is a bet rather than an ability to pay. But the assumption is an assumption, so the exit multiple is put on an explicit axis and the maximum price is re-solved along it. Two things fall out that a single point estimate hides: one turn of exit multiple is worth a constant amount of enterprise value at a given structure, and the same turn is not worth a constant number of basis points of return, because a fifth root is concave.
Market capacity as a second, independent test
An underwriting floor is a rule the term sheet states. Observed market capacity is what has actually cleared: the total and first-lien leverage on comparable single-B financings priced into the same rate environment, the spread they paid, and the size of the senior unsecured tranches that found buyers. The two tests are independent, and running only one leaves the answer resting on a single input. They also ask different questions of a bond — whether the market will buy paper of that size is not the same question as whether it will underwrite that much leverage, and an analysis that answers only the first has told the board the comfortable half.
Sources of funding as a capacity screen
A screen of the sponsor universe against the equity check the answer requires. It asks whether a fund could write the check, not whether it would want to: fund size against a stated single-asset concentration limit, capital actually remaining against capital committed, mandate, and whether the fund is a control buyer at all. What it produces is not a price. It produces the depth of the field — how many parties can be in the room — and the difference between a fund that fails on size and one that passes on size but fails on remaining capital is exactly the judgment being tested.
Screening a leveraged finance extract
The new-issue file arrives with rows that do not belong: a different rating category, a different use of proceeds, a different sector with a different underwriting basis, and a vintage that priced into a different rate environment. Each has to be tested and each exclusion has to carry a stated ground. The subtlety here is choosing which statistic to report. Some statistics are insensitive to contamination and will look identical before and after screening; others move by more than a turn on one row. Quoting only the insensitive one makes a dirty extract look exactly like a clean one.
Stock-based compensation and add-back discipline
Every multiple in this case divides into one number, so what sits inside that number decides the answer. Wexbury grants restricted management units that vest ratably, the expense recurs in every year of the plan, and a buyer will have to grant a replacement pool on day one — so it is charged inside Adjusted EBITDA in every period rather than added back. The FY2025A bridge from reported EBITDA carries four items totaling $12.5mm, about 9.9% of Adjusted EBITDA, and each one is a cost that was actually incurred rather than an unrealized run-rate saving. That is the test to apply, not the size of the total.
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
- —LBO as a valuation floor
- —Closed-form solve to a required return
- —Debt schedules under alternative financing structures
- —Fixed-charge coverage against interest coverage
- —Price by exit-multiple grid
- —Leveraged finance market capacity screening
- —Potential sources of funding screen
- —Sponsor versus strategic value gap
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 Wexbury — Sponsor Ability-to-Pay
60-second preview — upgrade to Diamond for the full walkthrough
Frequently Asked Questions
What is an ability-to-pay case study in an investment banking interview?
It is a leveraged buyout run in reverse. Instead of fixing a purchase price and computing the sponsor's return, you fix the return the sponsor has to earn, take the financing the debt market will actually provide as given, and solve for the highest price that still clears the hurdle. The output is a financing-constrained floor under a sale process: the number a strategic buyer has to beat, and the number a board needs before it decides how to run the process. It shows up in M&A and sponsors groups, and at superdays, because it tests whether a candidate can hold a valuation question and a credit question in the same model.
Why is there no discounted cash flow, no comparable companies analysis and no football field here?
Because none of them answer the question asked. Ability to pay is a financing-constrained solve, not an intrinsic valuation, and putting a cost of capital next to a required return in the same book invites a reader to confuse the two — they are different quantities that both look like percentages. There is no WACC anywhere in this case and no discount rate at all. A football field is a bar chart of a single methodology's range, which is one bar. Three sector transactions appear as market context and are labeled as such; they are not a screened precedent set, and no median should be computed from them.
How do you solve for the maximum price without a circular reference?
By noticing that nothing in the debt schedule depends on the price. Leverage is struck in turns of LTM Adjusted EBITDA, so funded debt, the interest on it, the free cash flow it leaves, the sweep and the net debt at exit are all determined before the purchase price is known. That makes the exit equity value a constant for a given structure and a given exit multiple, and the required return then pins the sponsor's equity check algebraically once the management incentive pool's share of the gain is netted out. Enterprise value follows from the equity check, the net financing proceeds, the minimum cash funded at close and the transaction fee. The base case where the exit multiple equals the entry multiple is a fixed point and resolves by substitution.
How should you spend the ninety minutes?
Most of it at the keyboard, but not all of it. The single largest time saving is recognizing that the three financing structures are one block of formulas copied twice rather than three separate models, so build one structure end to end, prove it against its own free cash flow, and then replicate. Leave genuine time for the two things candidates run out of clock on: screening the raw extract, which cannot be done in two minutes and is graded, and the deck. The deck is expected to be a skeleton of headline pages — a ninety-minute exercise that already demands a full model does not also produce a finished book — but a submission with an empty deck has not answered the board's question at all.
Why does the base case hold the exit multiple equal to the entry multiple?
Because assuming you sell at a higher multiple than you paid is assuming the answer. If the exit multiple is allowed to expand, the price a buyer can pay rises without anything about the business or the financing having changed, and the analysis stops being an ability to pay and becomes a bet on the market five years out. Holding exit equal to entry makes the base case self-consistent — it is a fixed point, which is why it has to be solved rather than assumed — and the exit multiple then goes on an explicit, labeled axis so a reader can price the bet themselves. Reporting the grid alongside the point answer is what makes the point answer credible.
Why screen the leveraged finance extract at all if the term sheet already states the underwriting floors?
Because they are two independent tests and an answer that rests on one input is fragile. The floors are a rule a financing desk states; the extract is a record of what the market has actually cleared, at what leverage, at what spread and in what size. If both point the same way you have a conclusion with two legs under it, which is what a board needs before it commits to a process. And the screen is graded in its own right: the extract carries rows from a different rating category, a different use of proceeds, a different sector and a different rate environment, and each one has to be excluded on a stated ground rather than just deleted.
About This Ability-to-Pay Analysis Case Study
Ability-to-Pay Analysis case study for investment banking interviews. 90-minute format covering lbo as a valuation floor, closed-form solve to a required return, debt schedules under alternative financing structures. 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 Buyouts. 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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