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Tidewater Office Partners · TWOP

DEMO DATAUNDERWRITING ASSUMPTIONPASS
Five-minute case summary

Tidewater Office Partners

DEMO DATAUNDERWRITING ASSUMPTION
PASS
1
The opportunity
Demo purchase of $100M face of Second-Priority Term Loan at 72.0 (cash investment $72.4M): current yield 11.9%, yield to maturity 26.8%.
2
The question
Does a 26.8% yield on a rank-2 secured claim compensate for 100% probability-weighted default risk and 100% severe-case loss?
3
The thesis
Appraised value covers the mortgage and most of the second-priority loan today, but the November 2026 unsecured maturity and March 2027 CMBS maturity compress the timeline. Returns are asymmetric: strong in base/downside, near-total loss in severe where office values fall >35%.
4
The risk (what causes loss)
  • Severe-case valuation recovery of 0% is below the 72.0 purchase price: a 100% loss given default.
  • Thin interest coverage: EBITDA / interest 1.80x at FY2025A (EBITDA could fall 44% before coverage hits 1.0x).
  • Refinancing: $1150M maturity in FY2027E; only $45M projected liquidity; $1105M refinancing requirement.
  • Base-case refinancing fails for 3 maturing tranche(s).
5
The protection
  • Secured, rank 2: $1.1B ranks ahead.
  • Discounted second-priority entry at 72
  • Asset sales to cure maturities
6
The base case
Base case (55%): revenue -2.0% in FY2026E, EBITDA margin 57.5%; payment default in FY2026E; IRR 24.9%, MOIC 1.53x vs 12% hurdle.
7
The downside
Downside (30%): EBITDA $162M at the trough, peak net leverage 9.8x, covenants breach in FY2027E; default in FY2026E; IRR -10.5%. Severe (15%): default in FY2026E, IRR -84.0%.
8
The recovery
If the company defaults, recovery value is $1.1B (liquidation) in the severe case → 0% recovery (100% LGD) on the target tranche; downside 48%.
9
The decision
PASS. PASS: Expected-cash-flow IRR (probability-weighted) clears hurdle; Downside IRR stays above floor; Downside recovery meets minimum (valuation waterfall). The return does not compensate for the modelled downside.

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.