# Market value of Term Loan A and Revolver Credit Facility

Good afternoon,

I am at the moment valuing Activision Blizzard (ATVI) and I need to compute the market value and cost of debt of the company.

This company has traded and nontraded debt. For the traded debt, computing the market value is easy since we have a price. However, the company also has a Term Loan A and Revolving Credit Facility. Is there any good way to estimate the yields and market values of these two instruments? Both the Revolver and Term Loan are priced at a spread of 125 basis points to LIBOR (LIBOR + 125 bps).

Also the Term Loan A is part of “Long-term debt” on the balance sheet. However, it is not stated in annual report that the Revolver is in the balance sheet. I think a Revolver generally is considered as “Short-term debt” but there is no item in the balance sheet. Maybe it is included under other current liabilities.

Thanks for the help and time spent reading the post.

for the revolver you need to know how much is actually drawn (on the revolving) line of credit… point is company can have a \$100m revolver facility but never touched it

The following is stated on the 10-K “To date, we have not drawn on the Revolver”. Given this, should I disregard the Revolver?

Based on their 10-K the book value of the term loan should still be at market:

11. Debt (Continued)

As of December 31, 2016 and 2015, the carrying values of the 2016 TLA and the Original Term Loan approximate their fair value, based on Level 2 inputs (observable market prices in less than active markets), as the interest rate is variable over the selected interest period and is similar to current rates at which we can borrow funds. Based on Level 2 inputs, the fair values of the 2023 Notes, New 2021 Notes, and 2026 Notes were \$818 million, \$635 million, and \$808 million, respectively, as of December 31, 2016. Based on Level 2 inputs, the fair values of the Original 2021 Notes and 2023 Notes were \$1,571 million and \$795 million, respectively, as of December 31, 2015.

Yes, that is correct. I also saw that in their latest 10-Q. However, I was wondering if there was anyway to estimate the yield on the Term Loan, so I could come up with an appropriate cost of debt for the company. Do you know if there is anyway to do it?

Thanks

I read the following in a book named “Investment Banking Valuation, Leveraged Buyouts and M&A”:

“We estimated X company’s long-term cost of debt based on the current yields on its existing term loan and senior notes. The term loan, which for illustrative purposes we assumed is trading at par, is priced at a spread of 350 basis points to LIBOR (L+350bps) with a LIBOR floor of 1%. Based on the rough average cost of debt across X company capital structure, we estimated the cost of debt at 6%.”

Also, the following is stated in Activision Blizzard latest 10-K:

“Borrowings under the Revolver may be borrowed, repaid, and re-borrowed by the Company, and are available for working capital and other general corporate purposes. Up to \$50 million of the Revolver may be used for letters of credit. To date, we have not drawn on the Revolver. Borrowings under the 2016 TLA and the Revolver will bear interest, at the Company’s option, at either (a) a base rate equal to the highest of (i) the federal funds rate, plus 0.5%, (ii) the prime commercial lending rate of Bank of America, N.A. and (iii) the London Interbank Offered Rate (“LIBOR”) for an interest period of one month beginning on such day plus 1.00%, or (b) LIBOR, in each case, plus an applicable interest margin. LIBOR will be subject to a floor of 0% and the base rate will be subject to an effective floor of 1.00%. The applicable interest margin for borrowings under the 2016 TLA and Revolver will range from 1.125% to 2.00% for LIBOR borrowings and from 0.125% to 1.00% for base rate borrowings and will be determined by reference to a pricing grid based on the Company’s credit ratings. At December 31, 2016, the 2016 TLA bore interest at 2.02%”

It seems that Activision’s term loan is priced at a spread of 125 basis points to LIBOR (I checked Thomson Reuters). So, the yield of the term loan should be the LIBOR rate plus 125 basis points?

Thanks and sorry for the long text