BVX Knowledge Base
BVX Knowledge Base
M&A University

Pre-payment Sequence

BVX drives to a level described in that section, which is usually zero. This usually occurs in year-1 and in subsequent years there is positive BVX - Cash Flow. What does one do with this excess cash flow? Ideally, such cash flow should be used to pay down the most expensive capital, which is equity. This would also be consistent with the seller objective of value maximization. However, lenders generally restrict such distribution to the buying shareholder. One alternative is to keep the excess cash flow in a bank and earn a low interest. However, this is inefficient and does not help maximize the selling price. In order to maximize price, BVX uses this excess cash flow to pay down other debt obligations in a pre-determined sequence. Sophisticated investors like Private Equity Groups and Investment Bankers use this approach for deploying excess cash (They use this approach in their financial models, even though in real-life they may not practice it.) Such pre-payment is an efficient use of the funds and hence helps maximize the price from a "willing seller" perspective. 


BVX pays down excess BVX Cash Flow in the following default order: Dividends(only if user input permits dividend distribution), Over Advance Loan, A/R Revolver, Inventory Revolver, Fixed Assets Term Loan, new Capital Expenditure Loan, and Gap (Seller) Note.  If there is still cash left over (this would occur only if there is no debt left on the balance sheet), BVX automatically distributes it as dividends; because, in absence of any debt obligation, there is no reason for the cash to be retained in the business; at least from the viewpoint of the seller, who wants the maximum price.


BVX provides an option, in , of skipping pre-payment on any of the above obligations. This may be required, for example, if the Over Advance Loan is an assumed lease obligation that does not have to be re-paid ahead of schedule. If the user chooses not to pre-pay any debt obligations, then the BVX - Cash Flow will be distributed as dividends. If the user further chooses not to distribute the cash flow as dividends, then the cash flow will remain as cash on the balance sheet.



a) Internal Settings only permit skipping of pre-payment, not changing of the sequence,

b) BVX does not have the option to pre-pay the or the , and

c) If the main Gap (Seller) Note is deferred, it is still paid down ahead of schedule if there is excess cash flow.