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Northgate Software · NGS

DEMO DATAUNDERWRITING ASSUMPTIONHOLD
Five-minute case summary

Northgate Software

DEMO DATAUNDERWRITING ASSUMPTION
HOLD
1
The opportunity
Demo purchase of $100M face of Senior Unsecured Notes at 96.0 (cash investment $96.5M): current yield 7.0%, yield to maturity 7.7%.
2
The question
Does a 7.7% yield on a rank-3 unsecured claim compensate for 0% probability-weighted default risk and 0% severe-case loss?
3
The thesis
High-quality, low-leverage credit. Debt is well covered in every scenario, but pricing near par leaves little spread for the risk taken; we would own the notes only on a spread-widening event.
4
The risk (what causes loss)
  • Unsecured, rank 3: $450M of debt ranks ahead.
  • Weakest credit-score factor: Asset coverage (4.9 of 12 points).
  • Spread compression leaves little return cushion
  • AI-driven pricing pressure on workflow tools
5
The protection
  • Severe-case valuation recovery of 100% covers the 96.0 purchase price (principal protected).
  • Coverage of 5.62x EBITDA / interest; EBITDA can fall 82% before coverage reaches 1.0x.
  • Moderate leverage: net debt / EBITDA 1.8x.
  • Liquidity of $240M (40% of total debt).
6
The base case
Base case (55%): revenue 9.0% in FY2026E, EBITDA margin 31.0%; no default; IRR 8.1%, MOIC 1.25x vs 12% hurdle.
7
The downside
Downside (30%): EBITDA $218M at the trough, peak net leverage 1.5x, covenants hold; no default; IRR 4.9%. Severe (15%): no default, IRR -2.4%.
8
The recovery
If the company defaults, recovery value is $1.6B (going concern) in the severe case → 100% recovery (0% LGD) on the target tranche; downside 100%.
9
The decision
HOLD. HOLD (do not size yet): Base-case IRR clears hurdle (8.1% vs ≥ 12.0%); Expected-cash-flow IRR (probability-weighted) clears hurdle (5.7% vs ≥ 12.0%); Entry yield meets minimum (7.7% vs ≥ 9.0%).

Generated from the structured model (no free-text generation beyond the analyst’s thesis and risk lists). Hypothetical terms are underwriting assumptions; nothing here is a real transaction.