Deal Lab · Buyout model 1.0
Tennessee Valley Authority Buyout Model
A buyout of Tennessee Valley Authority on its published figures for the last 4 quarters to Q4 FY2026, in US dollars: revenue flat, the margin and the shares of revenue of that period, entry and exit at 10.0x EBITDA, exit after 5 years.
Returns
Internal rate of return
−5.3%
Multiple of money
0.76x
Sponsor's equity
$28.7bn
Enterprise value
$53.5bn
Proceeds at exit
$21.9bn
Sources and Uses
| Uses | Amount |
|---|---|
| Equity price | $31.1bn |
| Borrowings refinanced | $24.1bn |
| Transaction costs | $1.1bn |
| Financing fees | $535m |
| Minimum cash | $284m |
| Uses | $57.0bn |
| Sources | Amount |
|---|---|
| Senior loan | $20.0bn |
| Subordinated notes | $6.7bn |
| Cash of the company | $1.7bn |
| Sponsor's equity | $28.7bn |
| Sources | $57.0bn |
Projection
| Closing | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|---|
| Revenue | $14.2bn | $14.2bn | $14.2bn | $14.2bn | $14.2bn | $14.2bn |
| EBITDA of the case | $5.4bn | $5.4bn | $5.4bn | $5.4bn | $5.4bn | $5.4bn |
| Cash cost of leases | $55.0m | $55.0m | $55.0m | $55.0m | $55.0m | $55.0m |
| Depreciation and amortisation | $2.0bn | $2.0bn | $2.0bn | $2.0bn | $2.0bn | |
| Capital expenditure | $3.8bn | $3.8bn | $3.8bn | $3.8bn | $3.8bn | |
| Increase in working capital | $0 | $0 | $0 | $0 | $0 | |
| Interest | $2.1bn | $2.2bn | $2.3bn | $2.3bn | $2.4bn | |
| Tax | $295m | $278m | $261m | $244m | $225m | |
| Cash available for debt service | $1.2bn | $1.2bn | $1.2bn | $1.3bn | $1.3bn |
Debt Schedule
| Closing | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|---|
| Senior loan | $20.0bn | $19.8bn | $19.6bn | $19.4bn | $19.2bn | $19.0bn |
| Subordinated notes | $6.7bn | $6.7bn | $6.7bn | $6.7bn | $6.7bn | $6.7bn |
| Revolving facility | $0 | $1.1bn | $2.3bn | $3.6bn | $4.8bn | $5.4bn |
| Cash | $284m | $284m | $284m | $284m | $284m | −$539m |
| Debt to EBITDA | 5.00x | 5.17x | 5.36x | 5.55x | 5.75x | 5.81x |
| EBITDA to interest | 2.50x | 2.43x | 2.36x | 2.29x | 2.22x |
Covenants and the Credit View
| Closing | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|---|
| Limit of debt to EBITDA | 6.50x | |||||
| Lease-adjusted debt to EBITDA | 5.00x | 5.17x | 5.36x | 5.55x | 5.75x | 5.81x |
| Band of debt to EBITDA | Highly leveraged | Highly leveraged | Highly leveraged | Highly leveraged | Highly leveraged | Highly leveraged |
Return Bridge
| Amount | |
|---|---|
| Sponsor's equity | $28.7bn |
| EBITDA growth | $0 |
| Change of multiple | $0 |
| Net debt repaid | −$5.2bn |
| Non-controlling interests | $0 |
| Costs at closing | −$1.6bn |
| Management and limited liability | $0 |
| Proceeds at exit | $21.9bn |
Sensitivity Tables
| Entry by exit | 8.00x | 9.00x | 10.0x | 11.0x | 12.0x |
|---|---|---|---|---|---|
| 8.00x | −7.7% | −0.9% | 4.4% | 8.8% | 12.6% |
| 9.00x | −13.6% | −6.6% | −1.2% | 3.3% | 7.0% |
| 10.0x | −17.2% | −10.4% | −5.3% | −1.0% | 2.6% |
| 11.0x | −20.0% | −13.5% | −8.5% | −4.4% | −0.9% |
| 12.0x | −22.4% | −16.0% | −11.2% | −7.2% | −3.8% |
| Debt by growth | −4.0% | −2.0% | 0.0% | 2.0% | 4.0% |
|---|---|---|---|---|---|
| 4.00x | −11.2% | −6.9% | −3.1% | 0.5% | 3.9% |
| 4.50x | −13.5% | −8.5% | −4.1% | 0.0% | 3.7% |
| 5.00x | −16.5% | −10.4% | −5.3% | −0.7% | 3.4% |
| 5.50x | −20.9% | −13.0% | −6.8% | −1.5% | 3.1% |
| 6.00x | −28.1% | −16.6% | −8.8% | −2.5% | 2.8% |
Solvers
Highest entry multiple for a return of 20.0%
n/a
No entry multiple reaches the target
Revenue growth a year for a return of 20.0%
13.6%
The target return
Debt capacity at closing, times EBITDA
5.55x
The interest cover or the limit of debt to EBITDA
Assumptions and Their Origins
| Group | Assumption | Value | Origin |
|---|---|---|---|
| Transaction | Entry multiple | 10.0x | Convention of buyout 1.0 |
| Transaction | Years to exit | 5 years | Convention of buyout 1.0 |
| Transaction | Transaction costs | 2.0% | Convention of buyout 1.0 |
| Transaction | Financing fees | 2.0% | Convention of buyout 1.0 |
| Transaction | Minimum cash, of revenue | 2.0% | Convention of buyout 1.0 |
| Financing | Debt at closing, times EBITDA | 5.00x | Convention of buyout 1.0 |
| Financing | Debt at most, of the enterprise value | 60.0% | Convention of buyout 1.0 |
| Financing | Senior loan, of the new debt | 75.0% | Convention of buyout 1.0 |
| Financing | Senior loan repaid each year | 1.0% | Convention of buyout 1.0 |
| Financing | Cash sweep | 100% | Convention of buyout 1.0 |
| Financing | Revolving facility, times EBITDA | 1.00x | Convention of buyout 1.0 |
| Financing | Base rate | 3.9% | Policy rate of the United States, BIS central bank policy rates, 10 November 2026 |
| Financing | Senior loan spread | 3.5% | Convention of buyout 1.0 |
| Financing | Subordinated notes spread | 6.0% | Convention of buyout 1.0 |
| Financing | Revolving facility spread | 3.0% | Convention of buyout 1.0 |
| Financing | Covenant headroom on debt to EBITDA | 30.0% | Convention of buyout 1.0 |
| Financing | Minimum EBITDA to interest | 2.00x | Convention of buyout 1.0 |
| Operations | Revenue growth a year | 0.0% | Convention of buyout 1.0 |
| Operations | EBITDA margin | 37.7% | EBITDA over revenue, last 4 quarters to FY2026 Q4 |
| Operations | Cash cost of leases, of revenue | 0.4% | Cash cost of leases over revenue, last 4 quarters to FY2026 Q4 |
| Operations | Depreciation and amortisation, of revenue | 14.1% | Depreciation and amortisation over revenue, last 4 quarters to FY2026 Q4 |
| Operations | Capital expenditure, of revenue | 26.7% | Median capital expenditure over revenue, fiscal 2024 to 2026 |
| Operations | Working capital, of revenue | 0.1% | Working capital over revenue, end of the last 4 quarters to FY2026 Q4 |
| Operations | Leases as debt | Yes | Leases as debt, the basis of the credit metrics |
| Operations | Share-based pay added back | No | Convention of buyout 1.0 |
| Taxes | Tax rate | 25.5% | Combined statutory rate of corporate income tax of the United States, OECD Corporate Tax Statistics, 2026 |
| Taxes | Interest deducted up to 30% of EBITDA | No | Convention of buyout 1.0 |
| Exit | Exit multiple | 10.0x | Convention of buyout 1.0 |
| Exit | Management share of the proceeds | 0.0% | Convention of buyout 1.0 |
| Exit | Target return | 20.0% | Convention of buyout 1.0 |
Inputs and Their Documents
Published figures of the last 4 quarters to Q4 FY2026, each with the documents it comes from.
| Input | Value | Method | Documents |
|---|---|---|---|
| Adjusted EBITDA | $5.4bn | Adjusted EBITDA of the company page | 10-Q 2025-12, 10-Q 2026-03, 10-Q 2026-06, 10-K 2026-09 |
| Share-based pay | $0 | No share-based pay is reported | 10-Q 2025-12, 10-Q 2026-03, 10-Q 2026-06, 10-K 2026-09 |
| EBITDA after share-based pay | $5.4bn | Adjusted EBITDA less share-based pay | 10-Q 2025-12, 10-Q 2026-03, 10-Q 2026-06, 10-K 2026-09 |
| Depreciation and amortisation | $2.0bn | Depreciation and amortisation of adjusted EBITDA | 10-Q 2025-12, 10-Q 2026-03, 10-Q 2026-06, 10-K 2026-09 |
| Revenue | $14.2bn | Revenue of the base period | 10-Q 2025-12, 10-Q 2026-03, 10-Q 2026-06, 10-K 2026-09 |
| Operating lease cost | $55.0m | Operating lease cost | 10-K 2026-09 |
| Borrowings | $24.1bn | Total debt less lease liabilities | 10-K 2026-09 |
| Lease liabilities | $44.0m | Lease liabilities | 10-K 2026-09 |
| Cash and short-term investments | $1.7bn | Cash and short-term investments | 10-K 2026-09 |
| Non-controlling interests | $0 | The balance sheet reports none | n/a |
| Receivables | $2.5bn | Receivables | 10-K 2026-09 |
| Payables | $3.7bn | Payables | 10-K 2026-09 |
| Inventories | $1.2bn | Inventories | 10-K 2026-09 |
| Capital expenditure | $3.8bn | Capital expenditure of the latest fiscal year | 10-K 2026-09 |
Checks of the Model
- Sources equal uses
- The equity price is above nil
- The sponsor's equity is above nil
- Each balance of debt stays between nil and its amount at closing
- Cash is the cash of the year before and the cash flow of the year
- Cash stays at the minimum unless a shortfall is stated
- The 6 parts of the bridge add up to the proceeds less the sponsor's equity
- The cash flows at the internal rate of return have a present value of nil
Deal Lab computes arithmetic on published figures and on the assumptions of the user. It values no company, recommends no transaction and forecasts no result.