capstack-lbo 0.1.0__py3-none-any.whl

capstack_lbo-0.1.0.dist-info/METADATA

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+Metadata-Version: 2.4
+Name: capstack-lbo
+Version: 0.1.0
+Summary: A leveraged buyout engine: sources and uses, a debt waterfall with cash sweep, covenant tests, and returns attribution.
+Author: Daniyal
+License-Expression: MIT
+Project-URL: Homepage, https://github.com/DaniyalMlk/capstack
+Project-URL: Repository, https://github.com/DaniyalMlk/capstack
+Project-URL: Issues, https://github.com/DaniyalMlk/capstack/issues
+Keywords: lbo,leveraged-buyout,private-equity,finance,debt-schedule,irr
+Classifier: Development Status :: 4 - Beta
+Classifier: Intended Audience :: Financial and Insurance Industry
+Classifier: Operating System :: OS Independent
+Classifier: Programming Language :: Python :: 3.11
+Classifier: Programming Language :: Python :: 3.12
+Classifier: Programming Language :: Python :: 3.13
+Classifier: Programming Language :: Python :: Implementation :: CPython
+Classifier: Topic :: Office/Business :: Financial :: Investment
+Classifier: Typing :: Typed
+Requires-Python: >=3.11
+Description-Content-Type: text/markdown
+License-File: LICENSE
+Provides-Extra: dev
+Requires-Dist: pytest>=8.0; extra == "dev"
+Requires-Dist: mypy>=1.8; extra == "dev"
+Requires-Dist: ruff>=0.4; extra == "dev"
+Dynamic: license-file
+
+# capstack
+
+A leveraged buyout engine.
+
+`capstack` builds the model a deal team argues over: what the business is bought
+for, how the purchase is funded, what the operating case throws off, how the debt
+gets paid down, whether the covenants hold, and what the sponsor makes on the way
+out.
+
+Every phase in `ROADMAP.md` is built, with the suite, the type checker and the
+linter running on every push. What is there: the numerics (exact money, day
+counts, period grids,
+the return measures), the transaction (entry valuation, a sources and uses table
+that balances, and the opening balance sheet after the recapitalisation), the
+operating case (drivers through to unlevered free cash flow), the capital
+structure (interest, amortisation, a cash sweep by seniority and a revolver that
+runs both ways), the covenants (maintenance tests, headroom measured in EBITDA,
+and a sweep that steps with a leverage grid), and the exit (equity value,
+returns by security through a preferred waterfall, and a value-creation bridge),
+and the analysis on top of them (two-dimensional sensitivity with the whole
+engine rebuilt and re-run at every cell, break-evens solved along any
+assumption, and the committee memo that assembles all of it), together with the
+management incentive plan that sits between the preferred and the common — an
+option pool with a strike, a vesting schedule, and a ratchet that steps with the
+sponsor's own return — the dividend recapitalisation, which raises debt part-way
+through a hold and pays it straight out to the shareholders, the add-on
+acquisition, which buys earnings during the hold and blends them into the entry
+multiple, and the refinancing, which retires a facility early and reports
+whether the lower coupon covered the premium. See [ROADMAP.md](ROADMAP.md).
+
+## What is checked, and against what
+
+An LBO model is easy to describe and hard to believe: every one of them claims
+to price a deal, schedule its debt and report a return, and the question a
+reader actually has is what any of it was checked against. So here is that,
+before the install line. Every figure is produced by `examples/evidence.py`,
+which runs in CI and exits non-zero if one of them moves:
+
+| Check | Result |
+| --- | --- |
+| The ambiguous-IRR stream against the quadratic's exact roots | 20.0% and 30.0%, within 1.5e-13 of 20% and 30% |
+| A two-flow return against the money multiple over the hold | 25.723629% a year, agreeing with m ** (1 / years) - 1 to 1.7e-16 |
+| Sources and uses on all 4 shipped deals | balanced by equality, worst gap 0, not within a tolerance |
+| The value-creation bridge against the change in equity value | worst unexplained residue 0 across 4 deals |
+| A sensitivity grid's base cell against the deal run on its own | 6 cells each a full rebuild, base cell out by 0 |
+| The interest deduction settled against the debt it is charged on, 4 shipped deals | at most 5 passes, worst residual 5.9e-5, and re-running each schedule on the settled cash flows moves its interest by 0 |
+| The deduction past saturation, 4 structures from 6.0x to 8.0x | all deduct 380.16 and pay 158.40 - spread 0, while the debt they leave spans 615.22 |
+| What the deduction is worth, 4 shipped deals | 90 to 189 basis points of return, and the equity gains 1.09 to 1.15 times the cash tax saved rather than once |
+
+The first two rows are the ones worth looking at twice, because they are the
+only two checked against something that shares no derivation with the engine.
+
+**The ambiguous stream is a quadratic.** A flow of -1,000 / +2,500 / -1,560
+gives `1000x² - 2500x + 1560 = 0` in `x = 1 + r`. Its discriminant is 10,000, a
+perfect square, so the roots are exactly 1.2 and 1.3 and the rates are exactly
+20% and 30% — not approximately, exactly. The solver knows nothing about
+quadratics: it scans the rate range for sign changes and refines every bracket
+it finds. Agreeing with the algebra to 1.5e-13 is therefore a statement about
+the solver rather than a restatement of it, and it is the check that makes
+"`capstack` reports *both* rates" mean something.
+
+**A two-flow return has a closed form.** One cheque out and one cheque in over
+a known hold is `m ** (1 / years) - 1`, by definition. A root finder that
+disagrees with that on two flows is wrong, whatever it does on twenty.
+
+**Two of the rows are about the circularity between tax and debt.** The
+interest deduction frees cash, the cash repays debt, the smaller balance earns
+less interest, and the smaller interest earns a smaller deduction. The solve
+that settles those against each other reports its own work — at most five
+passes on the shipped deals, and the residual it stopped on — rather than
+promising convergence. The claim worth more than the pass count is the third
+figure in that row: re-running each schedule on the cash flows the solve
+returns reproduces the interest it reported *exactly*. What comes back is one
+pass, not an average of several.
+
+**And past a point, leverage stops buying a deduction at all.** Once the cap
+binds in every period and the disallowed pool is never absorbed, the deduction
+*is* the allowance, and the allowance is a function of earnings alone — so it
+stops depending on the debt. Four structures from six turns to eight deduct the
+same amount and pay the same cash tax, to the last place, while the debt they
+leave at exit spans 615. The spread of zero is the finding; the spread of 615 is
+what stops it being vacuous, because it shows the four really were different
+structures.
+
+**And what all of that is worth is 90 to 189 basis points of return.** Which
+is why the convention is offered at all: a deal underwritten at 17.1% clears a
+20% hurdle at 18.9% no more than it did, but the gap between those two numbers
+is not a rounding difference, and a model that reports the first while the
+business pays the second is answering a question nobody asked.
+
+The second half of that row is the part worth reading twice. The equity gains
+**more** than the cash tax the structure saved — 1.09 to 1.15 times it, not
+once. The saved cash is swept against the debt, and debt repaid early does not
+accrue the interest it would otherwise have accrued, so the equity collects the
+saving *and* the interest the saving avoided. A test asserting the obvious
+thing, that the equity gains exactly the saving, is how that was found: it
+failed.
+
+The convention is **opt-in**, not the new default. Every figure in this
+repository is struck on the unlevered basis, the worked example's expected
+values were computed by hand on it, and which convention a model runs under is
+a modelling decision rather than a defect. `Case.run(deal, levered=True)` and
+`capstack exit --levered` ask for the other one.
+
+The zero rows are zeros rather than small numbers, and the distinction is
+the point. A funding table out by a few thousand on a billion has not nearly
+balanced — it has a missing line item, and a tolerance would hide precisely the
+error the table exists to catch. The same goes for a bridge that nearly
+explains the change in equity value: the residue would be a component nobody
+had named. Both are asserted as equality, which is only possible because every
+amount here is a `Decimal` carried at full precision and never a float.
+
+The two rate figures are quoted as bounds rather than digits, deliberately.
+Where two implementations of the same rate stop agreeing is a fact about the
+floating-point unit underneath, so a figure quoted to sixteen places would be a
+number that happens to be true on the machine that measured it. The bound is
+the claim, and it is the bound the script enforces.
+
+```bash
+python examples/evidence.py     # all eight, non-zero if a figure moves
+```
+
+Behind them: 1,719 tests on Python 3.11 through 3.13, with `mypy --strict` and
+`ruff` over the source, the tests and the gate above.
+
+## Install
+
+```bash
+python -m pip install capstack-lbo
+```
+
+> **Not on the package index yet.** The `pip install` line above is what it
+> will be; until the first release lands, install from source:
+>
+> ```bash
+> python -m pip install "git+https://github.com/DaniyalMlk/capstack.git"
+> ```
+
+The distribution is `capstack-lbo` and the import is `capstack`. The two differ
+because `capstack` on the index is an unrelated library; the binary, the module
+and every identifier are unchanged, and `capstack-lbo` also works as a command
+so that `uvx capstack-lbo` resolves.
+
+Python 3.11 or newer. There are no dependencies — the engine imports only the
+standard library, so there is nothing else to resolve and nothing to compile.
+
+For a checkout:
+
+```bash
+python -m pip install -e ".[dev]"
+```
+
+## Use
+
+```console
+$ capstack returns 2026-06-30:-420000000:"sponsor equity" \
+                   2031-06-30:1134000000:"exit proceeds"
+Cash flows
+  2026-06-30  sponsor equity     -420,000,000.00
+  2031-06-30  exit proceeds     1,134,000,000.00
+
+  Day count             ACT/365F
+  Holding period        5.00 years
+  Net                   714,000,000.00
+  MoIC                  2.70x
+  IRR                   21.96%
+```
+
+Add `--json` for machine-readable output, and `--convention` to pick the
+day-count basis used to annualise.
+
+A deal is described in a file — there are already more inputs than a flag list
+carries legibly, and the operating case and debt schedule will add more:
+
+```console
+$ capstack deal examples/meridian.json
+Project Meridian   (close 2026-06-30)
+=====================================
+
+  Entry
+    LTM EBITDA                          240.00
+    Entry multiple                      11.50x
+    Enterprise value                  2,760.00
+    Net debt                            345.00
+    Equity purchase price             2,415.00
+
+  Sources
+    Term Loan B                 1,150.00   issued at 99.50
+    Senior secured notes          450.00
+    Second lien                   250.00   issued at 98.00
+    Rollover equity                85.00   no cash moves
+    Cash from balance sheet        45.00
+    Sponsor equity                994.14   the plug
+                                --------
+    Total                       2,974.14
+
+  Uses
+    Purchase of equity          2,415.00
+    Repay existing debt           410.00
+    Transaction fees               38.64   expensed
+    Financing fees                 41.25   capitalised
+    Original issue discount        10.75
+    Cash to balance sheet          40.00
+    Change of control payments     18.50   management contracts
+                                --------
+    Total                       2,974.14
+
+  Entry metrics
+    Total leverage                       7.71x
+    Equity contribution                 36.8%
+    Sponsor ownership                   92.1%
+    Total capitalisation              2,929.14
+```
+
+It also carries the target's own balance sheet, which is what purchase
+accounting is applied to:
+
+```console
+$ capstack balance examples/meridian.json
+Project Meridian - opening balance sheet   (close 2026-06-30)
+=============================================================
+
+  Assets
+    Cash                           60.00
+    Identifiable assets         1,675.00
+    Goodwill                    1,610.00
+    Deferred financing costs       41.25
+    Unamortised issue discount     10.75
+                                --------
+    Total assets                3,397.00
+
+  Liabilities
+    Debt at face                1,850.00
+    Operating liabilities         480.00
+    Deferred tax liability         45.00
+                                --------
+    Total liabilities           2,375.00
+
+  Equity
+    Sponsor equity                994.14
+    Rollover equity                85.00
+    Expensed at close             -57.14
+                                --------
+    Total equity                1,022.00
+
+    Liabilities and equity      3,397.00
+
+    Net debt                    1,790.00
+    Goodwill share of assets       47.4%
+```
+
+The same file carries the operating case:
+
+```console
+$ capstack project examples/meridian.json
+Project Meridian - operating case
+=================================
+
+                                       P1        P2        P3        P4        P5
+                                  2027-06   2028-06   2029-06   2030-06   2031-06
+  -------------------------------------------------------------------------------
+  Revenue                        1,605.80  1,722.22  1,825.55  1,912.27  1,979.20
+  EBITDA                           261.75    291.49    320.38    347.55    372.09
+  Depreciation & amortisation       57.81     62.00     65.72     68.84     71.25
+  EBIT                             203.94    229.49    254.66    278.71    300.84
+
+  Cash tax                         -50.98    -57.37    -63.67    -69.68    -75.21
+  NOPAT                            152.95    172.11    191.00    209.03    225.63
+
+  Add back D&A                      57.81     62.00     65.72     68.84     71.25
+  Capital expenditure              -77.08    -78.36    -78.50    -77.45    -75.21
+  Change in working capital        -14.09    -13.04    -11.57     -9.71     -7.50
+  Unlevered free cash flow         119.59    142.71    166.65    190.72    214.17
+
+  EBITDA margin                     16.3%     16.9%     17.5%     18.2%     18.8%
+  Cash conversion                   45.7%     49.0%     52.0%     54.9%     57.6%
+```
+
+And it carries the capital structure, which is where the cash actually goes:
+
+```console
+$ capstack schedule examples/meridian.json
+Project Meridian - debt schedule
+================================
+
+                                      P1         P2         P3         P4         P5
+                                 2027-06    2028-06    2029-06    2030-06    2031-06
+  ----------------------------------------------------------------------------------
+  Unlevered free cash flow        119.59     142.71     166.65     190.72     214.17
+  Cash interest                  -141.32    -138.62    -134.23    -128.78    -122.71
+  Commitment fees                  -0.73      -0.67      -0.69      -0.74      -0.76
+  Levered free cash flow          -22.45       3.42      31.73      61.20      90.71
+
+  Mandatory repayment             -11.50     -11.50     -11.50     -11.50     -11.50
+  Cash sweep                        0.00       0.00     -15.17     -37.27     -39.60
+  Revolver draw                    13.95       8.08       0.00       0.00       0.00
+  Closing cash                     40.00      40.00      45.06      57.48      97.08
+
+  Accrued to balances              11.67      12.25      12.79      13.39      14.01
+  Closing debt                  1,864.12   1,872.95   1,859.07   1,823.69   1,786.60
+
+  Closing balances
+  Revolving credit facility        13.95      22.03       6.86       0.00       0.00
+  Term Loan B                   1,138.50   1,127.00   1,115.50   1,073.59   1,022.48
+  Senior secured notes            450.00     450.00     450.00     450.00     450.00
+  Second lien                     261.67     273.92     286.71     300.10     314.11
+
+  Leverage                         7.12x      6.43x      5.80x      5.25x      4.80x
+  Base rate                        4.25%      3.94%      3.62%      3.31%      3.00%
+```
+
+The first two years are the interesting part: levered free cash flow is
+negative, the revolver funds the gap, the second lien accrues rather than pays,
+and total debt goes *up* before the operating case grows into the structure.
+
+The sweep in this deal steps: three quarters of excess cash flow above 5.50x,
+half above 4.50x, a quarter above 3.50x and nothing below. That is why the cash
+balance climbs in the last two periods instead of every spare pound going
+straight into the term loan.
+
+See [`examples/meridian.json`](examples/meridian.json) for the input. Assumption
+series are written the way an operating case is actually described — a bare
+number for something flat, `{"ramp": [0.085, 0.035]}` for growth that tapers, or
+a list when the years genuinely differ.
+
+Whether the structure is *allowed* to keep running is a separate question:
+
+```console
+$ capstack covenants examples/meridian.json
+Project Meridian - covenants
+============================
+
+                                      P1         P2         P3         P4         P5
+                                 2027-06    2028-06    2029-06    2030-06    2031-06
+  ----------------------------------------------------------------------------------
+  Total net leverage                 n/a      6.29x      5.66x      5.08x      4.54x
+    covenant                         n/a      7.50x      6.75x      6.00x      5.50x
+    cushion                          n/a      16.2%      16.1%      15.3%      17.4%
+    status                             -         ok         ok         ok         ok
+
+  First lien net leverage            n/a      3.80x      3.36x      2.92x      2.49x
+    covenant                         n/a      5.25x      4.75x      4.25x      4.00x
+    cushion                          n/a      27.5%      29.2%      31.2%      37.8%
+    status                             -         ok         ok         ok         ok
+
+  Interest coverage                  n/a      2.09x      2.37x      2.68x      3.01x
+    covenant                         n/a      1.73x      1.85x      1.98x      2.10x
+    cushion                          n/a      17.6%      22.1%      26.4%      30.3%
+    status                             -         ok         ok         ok         ok
+
+  Fixed charge coverage              n/a      1.03x      1.22x      1.42x      1.64x
+    covenant                         n/a      1.00x      1.00x      1.00x      1.00x
+    cushion                          n/a       1.7%       9.9%      17.1%      23.3%
+    status                             -         ok         ok         ok         ok
+
+  Tightest test
+    Fixed charge coverage in period 2
+    EBITDA projected                  291.49
+    Breaches below                    286.53
+    Cushion                            1.7%
+
+  No maintenance test is breached across the hold.
+```
+
+Each test shows the ratio, the covenant in force that period, and the cushion —
+how far EBITDA could fall before the test trips. The cushion is the number worth
+reading. All four tests pass comfortably in turns, but the fixed-charge test in
+period two survives a fall in EBITDA of only 1.7%, which is a materially
+different deal from the one the leverage rows describe.
+
+And finally what the whole thing was for:
+
+```console
+$ capstack exit examples/meridian.json
+Project Meridian - exit
+=======================
+
+  Exit at 2031-06-30
+    Exit EBITDA                       372.09
+    Enterprise value                4,092.98
+    Debt outstanding                1,786.60
+    Cash                               97.08
+    Cost of sale                       30.70
+    Equity value                    2,372.77
+    Exit multiple                     11.00x
+    Exit leverage                      4.54x
+
+  Equity
+                              invested     proceeds         MoIC          IRR
+    Sponsor preferred           845.02     1,241.87        1.47x         8.0%
+    Sponsor common              149.12       927.34        6.22x        44.1%
+    Management rollover          85.00       203.56        2.39x        19.1%
+    -------------------------------------------------------------------------
+    Total                     1,079.14     2,372.77        2.20x        17.1%
+    over 5.00 years
+
+  Where the value came from
+    EBITDA growth                   1,519.02
+    Multiple change                  -186.04
+    Debt paydown                      100.49
+    Entry and exit costs             -139.84
+                              --------------
+    Value created                   1,293.63
+```
+
+The equity rows are the point. Bought and sold at a lower multiple than it was
+bought at, the deal still returns 2.20x — and the sponsor's preferred earns 8.0%
+while the common behind it earns 44.1%, on exactly the same exit. That gap is
+the structure doing what the structure is for, and a model that reported one
+blended figure for the equity would hide it.
+
+The bridge underneath ties to the change in equity value exactly. It is worth
+reading in the order it prints: the business is worth 1,519 more because it
+earns more, 186 less because the multiple came in, and 100 more because the
+schedule repaid debt out of cash flow — a reminder that in a five-year hold at
+this leverage, deleveraging is a rounding error next to growth.
+
+Management get paid too, and the plan that pays them comes out of the common:
+
+```console
+$ capstack exit examples/kestrel.json
+Project Kestrel - exit
+======================
+  ...
+  Equity
+                              invested     proceeds         MoIC          IRR
+    Sponsor equity              407.62       936.50        2.30x        18.1%
+    Management rollover          24.00       139.94        5.83x        42.3%
+    -------------------------------------------------------------------------
+    Total                       431.62     1,076.43        2.49x        20.0%
+    over 5.00 years
+
+  Management incentive plan
+    Vested                           100.0%
+    Share of the pot                   5.7%
+    Residual before the plan        1,093.28
+    Strike paid in                     47.96
+    Pot divided                     1,141.24
+    Entitlement                        64.81
+    Paid to management                 16.85
+    What management are paid is what the common give up, to the penny.
+```
+
+Kestrel's pool is 10% of the fully diluted equity, struck at what the equity was
+worth on the day it closed, on a ratchet that pays 5% of the pot up to a 2.0x
+sponsor return and 10% above it. The sponsor lands on 2.30x, so the second band
+is partly in play and the blended take is 5.7% — a number that is not any of the
+inputs. Every return above it is quoted net of the plan, which is the only
+version worth quoting: a sponsor multiple struck before management are paid is a
+multiple on money somebody else receives.
+
+Not every deal is bought once and sold once. Kestrel raises 80 of incremental
+debt at the end of the third year and pays the proceeds out:
+
+```console
+$ capstack report examples/kestrel.json
+  ...
+  Paid during the hold
+  --------------------
+
+  98.2 reached the equity before the exit, funded by 80.0 of new debt. The
+  money multiple moves -0.02x and the rate of return moves +0.8pp: the same
+  money, banked earlier, less what the debt cost to carry.
+
+    Distributed during the hold   98.2
+    Incremental face raised       80.0
+    Cost of raising it             1.8   fees and issue discount
+    Money multiple, as run       2.47x
+    Money multiple, held flat    2.49x
+    Rate of return, as run       20.9%
+    Rate of return, held flat    20.0%
+
+    Date        Payment                 Amount  Years  Preferred  Common
+    ----------  ----------------------  ------  -----  ---------  ------
+    2029-09-30  Distribution, period 3    98.2   3.00        0.0    98.2
+
+    Dividend recapitalisation put 0.84x of leverage back on, taking net debt
+    from 3.13x to 3.97x of EBITDA.
+```
+
+The four figures in the middle are the point. Nothing about the business
+changed — same earnings, same multiple, same buyer — and the two measures
+disagree about whether anything happened. The multiple falls slightly, because
+the new debt costs interest for two years and the fees were real. The rate rises,
+because it is the only measure that knows the sponsor had the money in 2029
+rather than 2031. The "held flat" rows are the same deal run a second time with
+the event stripped out, which is the only way to say what the event was worth
+rather than merely that it occurred.
+
+A deal that buys other businesses while it holds this one is described under
+`acquisitions`, and each purchase gets its own funding table:
+
+```console
+$ capstack acquisitions examples/thornbury.json
+Project Thornbury - acquisitions
+================================
+
+  Halloway  (end of period 1)
+  ---------------------------
+    EBITDA acquired                       6.50
+    Multiple paid                        6.75x
+    Enterprise value                     43.88
+    Synergies, over 2 periods             0.90
+    Multiple after synergies             5.93x
+    Transaction fees                      0.66
+    Integration cost                      1.20
+    Total uses                           45.73
+    Face drawn                           44.00
+    Debt proceeds                        42.90
+    Funded from cash                      2.83
+    Capital deployed                     46.83
+    Cash after                           16.28
+    Leverage after                       5.06x
+    Turns added                         +0.92x
+  ...
+  Blended entry
+    Platform enterprise value           504.00
+    Platform EBITDA                      48.00
+    Platform multiple                   10.50x
+    Acquired enterprise value           134.25
+    EBITDA acquired                      20.00
+    Combined EBITDA                      68.00
+    Capital deployed                    647.09
+
+    Blended multiple                     9.39x
+    After synergies                      9.01x
+    On capital deployed                  9.52x
+    Multiple arbitrage                  +1.11x
+    Bought, not built                    29.4%
+```
+
+The last five lines are what a buy-and-build is argued on. A platform bought at
+10.50x that adds three businesses between 6.25x and 7.00x has an entry multiple
+of 9.39x, and it is that number the exit multiple has to be compared against —
+quoting the platform's 10.50x flatters the deal by exactly the arbitrage. The
+three readings above it answer different questions. After synergies is 9.01x,
+which credits earnings that have not been earned yet. On capital deployed is
+9.52x, which counts the fees, the discount and the integration cost that a
+multiple quoted on enterprise value leaves out: doing five transactions instead
+of one is not free, and the gap between 9.39x and 9.52x is what it cost.
+
+The purchases then run through everything downstream without being told about.
+The acquired earnings join the operating case from the following period at their
+own margin, growing on their own base; the debt raised for them is swept,
+amortised and tested by the covenants; and the memo reports the programme
+against the same deal with the purchases stripped out:
+
+```console
+$ capstack report examples/thornbury.json
+  ...
+  Bought during the hold
+  ----------------------
+
+  3 acquisitions added 20.0 of run-rate EBITDA at 9.39x blended against a
+  platform bought at 10.50x, 1.11x of arbitrage. Against the platform run on
+  its own the money multiple moves +0.43x and the rate of return moves
+  +4.5pp.
+
+    Business         Closes  EBITDA  Multiple  Price  New debt  From cash
+    ---------------  ------  ------  --------  -----  --------  ---------
+    Halloway         P1         6.5     6.75x   43.9      44.0        2.8
+    Ferrand Group    P2         8.0     7.00x   56.0      56.0        3.7
+    Calder Services  P3         5.5     6.25x   34.4      33.0        3.5
+
+    25.2 of the 94.1 of EBITDA the exit is priced on was bought rather than
+    built, which is 26.7% of it. An exit multiple argued from the platform's
+    own growth has to carry that share too.
+```
+
+A facility taken out early is described under `refinancings`, and the memo
+reports the trade rather than the new coupon:
+
+```console
+$ capstack report examples/thornbury.json
+  ...
+  Refinanced during the hold
+  --------------------------
+
+  200.9 of paper was retired early at a cash cost of 4.9. The lower coupon
+  does not earn back that over the hold that remains: 2.5 of interest saved.
+  A further 2.5 of capitalised fees was written off, which is a charge
+  against earnings and not against cash.
+
+    Face retired early                 200.9
+    Face of the new paper              195.0
+    Call premiums paid                   2.0
+    Cost of the exercise                 4.9   premium, fees and discount
+    Interest saved over the remainder    2.5   undiscounted, before amortisation
+    Fees written off                     2.5   non-cash; derived from the capitalised balance
+
+    Term Loan B repricing took 200.9 out at 7.7% and replaced it at 6.4%,
+    saving 2.5 a period with 1 of them left. Over that remainder the saving
+    does not cover what it cost: 2.5 against 4.9.
+```
+
+That verdict is the reason the section exists. A repricing is always attractive
+stated as a spread — 130 basis points off the coupon — and this one still does
+not clear, because the premium and the fees are paid at once while the saving
+arrives a period at a time and there is only one period left. The example ships
+with a decision the model argues against, which is more useful than one where
+everything works.
+
+That write-off is derived rather than stated. What each tranche was placed with
+— the arrangement fee charged on face and the discount it cleared at — is
+released across the life of the paper, and `capstack fees` shows the release and
+what the money actually costs once it is counted:
+
+```console
+$ capstack fees examples/kestrel.json
+Project Kestrel - capitalised financing costs
+=============================================
+
+                       P1         P2         P3         P4         P5
+                  2027-09    2028-09    2029-09    2030-09    2031-09
+  -------------------------------------------------------------------
+  Charge for the period
+  Unitranche         1.96       2.13       2.32       2.53       2.76
+
+  Balance remaining
+  Unitranche        12.74      10.61       8.29       5.77       3.01
+
+  Cost of the money
+                    coupon   effective    uplift  method
+    Unitranche       9.65%      10.48%       83bp  effective interest
+
+    Capitalised at close                     14.70
+    Released if the paper runs to term       11.69
+    Still capitalised at the end              3.01
+```
+
+The unitranche is quoted at 9.65% and costs 10.48%. Eighty-three basis points is
+not a rounding difference on 420 of paper, and it is invisible in a model that
+puts the fees on the uses side of the funding table and never looks at them
+again. The balance still capitalised at the end is not an error either: the
+paper matures in period seven and the hold runs five, so somebody writes off 3.01
+at the exit.
+
+Most deals do not sign on a reporting date. A deal closing on 16 November
+against a 31 December year end owns forty-five days of the year it closed in,
+and modelling that as a full period puts the trading in the wrong place and
+dates every column after it a month and a half early — which moves the exit
+date, the holding period and therefore the rate of return on a deal where
+nothing else changed. `projection.first_period_end` opens the grid on a stub:
+
+```console
+$ capstack project examples/ashcroft.json
+Project Ashcroft - operating case
+=================================
+
+                                    Stub       P1       P2       P3       P4       P5
+                                 2026-12  2027-12  2028-12  2029-12  2030-12  2031-12
+  -----------------------------------------------------------------------------------
+  Revenue                          62.26   541.36   576.01   643.11   673.98   700.94
+  EBITDA                            9.65    83.91    92.39   107.00   116.01   124.19
+  ...
+  Change in working capital         0.00    -3.45    -3.29    -6.37    -2.93    -2.56
+  Unlevered free cash flow          5.11    40.94    47.31    54.17    64.63    71.62
+```
+
+That zero is the whole exercise. Revenue, EBITDA and capital expenditure are
+flows and scale with the length of the period; working capital is a balance and
+does not. A model that struck the working-capital balance against six weeks of
+revenue would carry an eighth of the real one and release the difference into
+the stub as cash the business never had — which is the single largest number in
+a badly built stub and the easiest one to miss, because it makes the first
+period look better rather than worse.
+
+Two assumptions at a time, with the deal rebuilt and re-run per cell:
+
+```console
+$ capstack sensitivity examples/meridian.json \
+      --rows ebitda-margin:-6,-3,0,3 --columns exit-year:3,4,5,6
+Project Meridian - sensitivity
+==============================
+
+  IRR
+    exit year across, ebitda margin down
+    base case 17.1%, marked *
+
+                  3y        4y       5y*        6y
+    -6pp     -34.7%!   -16.0%!    -6.8%!    -3.8%!
+    -3pp      -3.9%!     3.2%!     6.7%!     7.2%!
+    0pp*      16.0%     17.1%     17.1%     15.8%
+    +3pp      30.6%     27.2%     24.6%     21.9%
+
+    ! a covenant breaches on this case
+    * the assumption the file describes
+```
+
+The marks are the part worth reading. Three hundred basis points off the margin
+still returns 6.7% over the planned hold, and every cell in that row trips a
+maintenance test before it gets there — a return the lenders have the right to
+interrupt is not a return. Axes are written the way they are said: levels as
+levels (`entry-multiple:11,11.5,12`), shifts in percentage points off the file's
+own case (`ebitda-margin:-1.5,0,1.5`). Seven dimensions and seven metrics are
+available; `capstack sensitivity --help` lists them.
+
+And the whole thing as one document:
+
+```console
+$ capstack report examples/meridian.json
+Project Meridian — investment committee (close 2026-06-30)
+==========================================================
+
+  The transaction
+  ---------------
+
+  240.0 of LTM EBITDA at 11.50x, funded at 7.71x of gross debt and 7.46x net
+  of the cash left on the balance sheet.
+  ...
+
+  Where the case stops working
+  ----------------------------
+
+  The sponsor gets its capital back at 7.50x, which is 4.00x below the
+  11.50x paid going in.
+
+    Question                                       Answer
+    --------------------------------------------  -------
+    Exit multiple returning capital and no more     7.50x
+    Exit multiple returning twice capital          10.42x
+    Margin shift tripping the first covenant      -0.35pp
+    Opening leverage tripping the first covenant    7.94x
+```
+
+`--markdown` for anything that has to be pasted somewhere, `--json` for
+anything that would rather lay the memo out itself, and `--no-breakevens` to
+skip the last section, which is the expensive part.
+
+That last section is the reason the report exists. Everything above it restates
+the base case, which is the one thing the reader already believes. The
+break-evens say where it stops: this structure has 4.00x of room on the exit
+multiple and 35 basis points of room on margin before a lender has a right to
+accelerate, and those two facts are what the meeting is actually about.
+
+## Test
+
+```bash
+pytest
+mypy
+```
+
+## Design decisions
+
+**Money is `Decimal`, never `float`.** A debt schedule is a chain of dependent
+subtractions running twenty periods deep; binary floating point drifts, and the
+drift shows up as a balance that fails to reach zero in the period it should.
+Every currency amount in `capstack` is a `Decimal` carried at full precision and
+rounded only at the point of presentation.
+
+Rates are a separate matter. Solving for an internal rate of return means root
+finding, and root finding wants floats. So the boundary is explicit: cash flows
+are exact, the solver works in floating point, and the result is a rate rather
+than an amount.
+
+**An ambiguous IRR is reported as ambiguous.** A cash-flow stream that changes
+sign more than once can have several rates at which its present value is zero.
+A stream of -1,000 / +2,500 / -1,560 returns 20% and it returns 30%; both are
+true, and which one a solver reports depends on where it started looking.
+
+`capstack` scans the whole rate range for sign changes, refines every bracket it
+finds, and raises `AmbiguousIRR` carrying all the roots rather than picking one.
+Refusing to answer is the correct behaviour here — the alternative is a model
+that quietly reports the flattering root.
+
+**Sources and uses balance exactly, or the object does not exist.** The check is
+in `__post_init__`, and it is equality rather than a tolerance. A funding table
+that is out by a few thousand on a three-billion deal has not nearly balanced —
+it has a missing line item, and a tolerance would hide precisely the error the
+table exists to catch.
+
+The sponsor's cheque is a derived residual rather than an input, which is how it
+works on a real deal: leverage is negotiated with lenders, price is negotiated
+with the seller, and equity fills whatever gap is left. When that residual comes
+out negative the structure is funding itself entirely out of its own borrowing
+capacity and paying the sponsor a distribution at close. That is aggressive, not
+invalid, so the model labels it rather than refusing it.
+
+**Goodwill is a residual, and the target's own goodwill is not part of it.**
+Goodwill on the target's books is the leftover of somebody else's transaction.
+It is written off at close and a new residual is struck against the price just
+paid; carrying both counts the same intangible twice and flatters the asset side
+by the whole of the old number.
+
+A fair-value step-up in a stock deal comes with a deferred tax liability, because
+book depreciation rises and tax depreciation does not. Recognising the step-up
+without the liability overstates equity by the tax on it. In the shipped example,
+180 of step-up at 25% moves only 135 out of goodwill, not 180.
+
+**A preferred paid down early accrues on what is left.** Once a deal can pay
+its shareholders more than once, a preferred claim stops being "the cheque plus
+a hold's worth of coupon". A distribution meets the accrued return first and
+capital second — which is the ordinary waterfall ordering, and the thing that
+makes "how much capital is still outstanding" answerable at all after a partial
+repayment. The remaining capital is what the coupon runs on from there.
+
+Charging the coupon on the original cheque after part of it has been repaid
+overstates the preferred's claim at exit and understates everything ranking
+behind it, which on a structure with preferred ahead of common is a transfer
+between two holders who both read the model.
+
+**A recapitalisation is reported against the deal without it.** Interest and
+fees mean the money multiple falls slightly and the rate of return rises
+materially: the same money, banked earlier, less what the debt cost to carry.
+Reported on its own, that says the sponsor received some money early. Reported
+against the same deal run a second time with the event stripped out, it says
+what the event was worth. The second run costs a full pass of the engine and is
+worth it, because the counterfactual is the entire content of the claim.
+
+**An acquired business is carried as its own stream, not as a lift to the
+platform's revenue line.** The natural implementation adds the bought revenue
+into the base that compounds, and it is wrong twice over: the acquired base then
+grows a second time next period, and the earnings inherit the platform's margin
+whatever they were actually bought on. Carrying the purchase separately keeps
+both honest — it compounds from its own run-rate at its own margin — and it also
+buys the one figure a buy-and-build cannot be judged without, which is how much
+of the exit earnings were bought rather than built.
+
+**Cash is the plug for an acquisition, and a purchase the balance sheet cannot
+fund is refused.** The draws raise what they raise; whatever is left of the
+price comes off the cash the business is holding. That means the funding table
+cannot fail to balance, and reduces the failure modes to one real question:
+whether the business could actually pay. When it cannot, the answer is an error
+naming what was needed and what was there, not a quietly smaller purchase. A
+model that pays less than the file describes has answered a question nobody
+asked.
+
+**An acquisition in the final period is refused rather than modelled.** It would
+pay cash for earnings no period ever records, and the exit — priced on the final
+period's EBITDA — would value nothing at all. The deal would then report a
+purchase price out, no earnings in, and a bridge blaming the shortfall on the
+operating case. Bringing the purchase forward or lengthening the projection is
+what such a file actually means, and saying so is more useful than modelling the
+nonsense faithfully.
+
+**Synergies are quoted twice and neither is the headline.** The blended multiple
+holds them out, because a multiple struck on earnings that do not exist yet is a
+forecast wearing the clothes of a fact. The synergised multiple credits them,
+because it is the number the price was defended with and hiding it does not make
+the argument go away. Phasing is explicit for the same reason: an add-on that
+pays for itself in year one and one that pays for itself in year three are
+different deals, and underwriting the first when the second is what happens is
+how a roll-up gets into trouble.
+
+**A refinancing is judged on the hold that remains, not on the spread.** The
+premium and the fees on the new paper are paid at once; the lower coupon arrives
+a period at a time. Two years from an exit there is frequently not enough left
+of the hold to earn back what the exercise cost, and a model reporting the new
+coupon without that comparison has made the case for something it never tested.
+The saving is deliberately struck on the balance retired and before amortisation
+and the sweep reduce it, which makes it an upper bound — the direction a cost
+comparison should err in.
+
+**Unamortised financing fees written off are reported, and reported apart from
+anything that is cash.** The fees on the original paper were capitalised at
+close and written down over its life; retiring it early charges whatever is
+left in one go. Nothing moves in the bank account, no balance in this engine
+changes and the return does not shift by a basis point — which is exactly why
+it has to sit outside the cash cost rather than inside it. It is reported at all
+because it is real in a real set of accounts, and a reader who meets the number
+for the first time somewhere else has been failed by the model.
+
+**A takeout repays before it draws.** The order only shows when the new paper is
+the same facility at a new price, and then it decides the answer: repaying first
+makes a repricing net to the difference, while drawing first carries both
+balances for an instant and reports a figure the credit agreement never showed.
+The balance retired is the one left after the period's own amortisation and
+sweep have run, because that is the balance the notice would be served on.
+
+**A ratchet is written as marginal bands, because the obvious reading is
+circular.** A management pool that steps up as the sponsor clears hurdles is the
+common structure and the awkward one to model: the pool's share depends on the
+sponsor's return, and the sponsor's return depends on the pool's share. Models
+that write down the circle either iterate to whatever they converge on, or test
+the hurdle on a pre-dilution figure and leave the reader to discover that 2.0x
+meant 2.1x before management were paid.
+
+`capstack` writes the ratchet the way a well-drafted one reads: a *marginal*
+share of the proceeds in each band above a hurdle, rather than a higher share of
+everything once the hurdle is cleared. That makes the sponsor's post-ratchet
+proceeds continuous and strictly increasing in the sale price, so each band's
+boundary can be solved in closed form from the band below it — no iteration, and
+the hurdles mean what they say. There is a test that re-derives the first
+boundary from a finished deal and asserts the sponsor lands on exactly 2.0x
+there.
+
+The retroactive alternative is a real structure and it is deliberately not
+modelled. It is discontinuous: a penny more of enterprise value can leave the
+sponsor with less money than it had a penny earlier, and a solver asked where
+the hurdle binds has to choose between two answers on either side of a cliff.
+
+**An option pool is settled by the treasury method, and struck at cost means
+struck at cost.** The exercise proceeds join the pot before the pot is divided,
+so a pool holding a tenth of the fully diluted equity does not hold a tenth of
+the residual — it holds a tenth of the residual plus its own strike, less the
+strike. Below the point where those two are equal the options lapse: management
+are paid nothing and the common are not diluted at all.
+
+The strike itself is described as a multiple of the equity value at close rather
+than as an amount, so it moves with the entry multiple across a sensitivity grid
+instead of pricing every column against the base case. The gross-up in that
+derivation is easy to get wrong and worth stating: the existing holders' cheque
+buys them the share of the company the pool does *not* hold, so the fully diluted
+value at close is that cheque divided by one less the pool's share. Struck there,
+a plan is exactly at the money on a deal that creates no value. The naive
+derivation — the pool's share times the cheque — pays management something on a
+deal that created nothing, which is not what anyone signing it believed.
+
+**Working capital reaches cash flow as a movement, not a level.** A business
+growing at 8% with working capital steady at 15% of revenue consumes cash every
+single period, because the balance is rising and the increase has to be funded —
+even though the ratio never moves. Subtracting the balance rather than the change
+is the classic error, and it understates cash flow by an order of magnitude.
+
+**A loss carryforward cannot shelter everything.** The pool is capped at a
+percentage of taxable income — 80% by default, matching the limitation on US
+losses arising from 2018 onward — so a company with large historic losses still
+writes a cheque the moment it turns profitable. Modelling the pool without the
+cap overstates cash in precisely the years a sponsor is counting on it.
+
+**The interest/balance circularity is solved, not avoided.** Accrue interest on
+the average of the opening and closing balance — the right convention when
+repayments are spread through the period — and the closing balance depends on
+what was repaid, which depends on the cash left after interest, which depends on
+the balance the interest was accrued on. Once repayments are capped at balances
+and sweeps at available cash there is no closed form, so the engine iterates to
+a fixed point and reports the residual it reached. The alternative, accruing on
+the opening balance, overstates interest in every period a structure
+deleverages — which is every period a buyout is working.
+
+The map contracts by roughly `rate x year_fraction / 2` per turn, so a full step
+settles in about ten iterations; the step is halved if it ever fails to reduce
+the residual. Where no fixed point exists — a PIK rate at or past the pole at
+`pik_rate x year_fraction = 2` — the engine raises rather than returning its last
+iterate, because an unconverged schedule is not an approximate answer, it is a
+set of balances that do not reconcile with the interest charged against them.
+
+**A cash sweep is measured on the period's excess cash flow.** Not on the cash
+balance. Cash that a partial sweep deliberately left behind is not excess cash
+flow any more, and a credit agreement does not reach it again at the next test
+date. Sweeping the balance instead takes back half the retained cash next
+period, then half of that, until a negotiated 50% sweep has quietly become a
+100% one — which makes the sweep percentage, the most argued-over number in the
+credit agreement, do nothing at all.
+
+**Headroom is measured in EBITDA, not in turns.** The distance from 5.20x to a
+6.00x covenant is 0.80x. That is arithmetic, and it is not comparable across
+tests: 0.80x of leverage headroom and 0.80x of interest-cover headroom describe
+completely different amounts of trouble. Every observation therefore carries the
+EBITDA at which the test would trip and the shortfall as a percentage of the
+EBITDA projected. In the worked example the leverage tests look loose and the
+fixed-charge test survives a 1.7% miss, which is the fact worth knowing and the
+one the turns hide.
+
+The debt and the charges are held at their projected levels while EBITDA is
+flexed, which is why this is called a cushion and not a forecast. A business
+actually earning less would sweep less and carry more debt into the following
+year, so the true cushion is a little thinner than the reported one, never
+thicker.
+
+**An undefined ratio is not a pass and is not a blank.** A period with no
+earnings has no leverage ratio. Whether that is a breach depends on what is
+behind it: a business with no debt cannot be over-levered, and a business with
+debt and no earnings is exactly the case the covenant exists to catch. Both
+report no ratio; one passes and one breaches, and the report says which and why
+rather than leaving a reader to infer it from an empty cell.
+
+**The sweep grid is certified in arrears.** Real agreements sweep 50% of excess
+cash flow, stepping down as leverage falls. Reading the step off the leverage of
+the period being swept would make the rate depend on the closing balance, which
+depends on the sweep — a second circularity, and a step function dropped into
+the middle of the interest fixed point, where it can oscillate between two rungs
+indefinitely. The step is resolved against the leverage at the most recent test
+date instead. That is not a modelling convenience: an excess cash flow payment
+is made in arrears, at a rate set by a certificate signed before the cash was
+counted.
+
+**A structure carrying both a grid and a flat sweep rate is refused.** It has
+two answers to the same question, and silently preferring one of them hides a
+contradiction in the description of the deal rather than resolving it.
+
+**Growth is valued at the entry multiple and the multiple at exit EBITDA.** The
+cross term between the two — the extra turns earned on the extra EBITDA — has to
+be assigned somewhere, and the choice changes the story. Putting it in the
+multiple line is the conservative reading: the alternative flatters the growth
+line in precisely those deals where the multiple expanded, which are the deals
+where a sponsor least wants to be asked how much of the return was theirs.
+
+**The attribution is computed, not plugged.** The costs line could be defined as
+whatever the other three do not explain, and the bridge would then tie by
+construction and mean nothing. It is instead computed from the deal — the fees
+and issue discount the equity funded at close, plus the cost of selling — so the
+four components summing to the change in equity value is a check that can fail.
+It is asserted in the test suite at three different exit multiples.
+
+**The bridge is drawn before limited liability, the distribution after it.**
+Equity in a leveraged company is an option: shareholders in a business worth
+less than its debt hand the keys to the lenders rather than receiving a bill.
+So the equity value is floored at zero when it is distributed. It is *not*
+floored in the attribution, because the floor is a legal fact rather than a
+source of value, and folding it into the costs line would misattribute a loss
+the lenders absorbed to fees the sponsor paid. The two are reported side by
+side, with the difference named.
+
+**A security that was wiped out has no rate of return.** There is no rate at
+which nothing back is a return, and the solver's search range does not reach
+-100% because the discount factor is singular there. Rather than report the
+floor of the range as though it were an answer, the row carries no rate and the
+reason travels with it.
+
+**Falling below the minimum cash balance is not the same as running out.** A
+business that ends a period on less cash than its own policy requires has a
+covenant conversation ahead of it. One that ends below zero has an unpaid bill.
+The model reports them separately, and plugs only the second — notionally, and
+by name — so the periods after it stay readable instead of compounding a deficit
+that has already been reported.
+
+**Break-evens are bisected, not extrapolated.** Each evaluation rebuilds and
+re-runs the whole engine, so the function being solved is expensive — but more
+to the point it is not smooth. A cash sweep that steps at a leverage rung and a
+covenant that starts testing in period two put real discontinuities in these
+curves, and a secant or Brent step assuming local linearity will extrapolate
+across one and return a crossing that is not there. Halving an interval assumes
+nothing but a sign change. The bracket is required rather than guessed, because
+an open-ended search over an entry multiple eventually wanders into prices at
+which the deal does not describe a transaction at all.
+
+**A sensitivity cell is the whole engine, not a gradient.** Raising the entry
+multiple raises the price, which the funding table absorbs into the sponsor
+cheque, which changes the capital every multiple in the column is measured
+against — and, since the debt did not move, changes opening leverage and so the
+sweep step and so the debt outstanding at exit. Lowering the *exit* multiple
+touches the last period and nothing upstream. A linearisation reports the two as
+mirror images; they are not, and the deals that get done live in that gap.
+
+**Equity is described rather than measured.** A security funded as a share of
+the sponsor cheque keeps the description, not the amount. The sponsor's
+contribution is the plug that balances the funding table, so it moves whenever
+anything else does, and a stack that remembered the amount would report every
+multiple in a sensitivity column against the base case's denominator.
+
+**Debt is carried at face, not at proceeds.** A tranche placed at 99.5 raises
+99.5 and owes 100. The half-point is a use of funds. Carrying the tranche at
+proceeds understates leverage and understates every interest payment that
+follows it, because interest accrues on what is owed rather than on what was
+received.
+
+**Amortisation is struck against a basis, and the basis is a ledger.** A credit
+agreement writes the instalment as a fraction of face — 1% a year on a term loan
+means 1% of what was borrowed, not 1% of what is left, which is why a sweep
+running ahead of the schedule does not reduce what is contractually due next
+period. Reading "what was borrowed" as the face drawn at close is right for
+paper placed at close and wrong in both directions for anything else: a
+delayed-draw facility repays nothing however much is taken down on it later, an
+incremental facility grows the balance without growing the instalment, and a
+facility retired at a refinancing keeps amortising against face that no longer
+exists. So the basis is carried across the hold rather than read off the
+tranche. It opens at the face drawn at close, rises by incremental face taken
+down at a period boundary, and goes to zero when the facility is retired —
+which means face drawn at the end of one period first amortises in the next,
+because the instalment for a period is struck on the basis that period opened
+on. The schedule prints the basis wherever it moves, so a step in the instalment
+has a visible cause.
+
+**Capitalised financing costs are released over the life of the paper, not the
+life of the model.** Arrangement fees and original issue discount are one
+adjustment to what the debt is worth, not two, and they are a cost of borrowing
+the money rather than a cost of the period the cheque was written in. The
+general method is effective interest: solve the rate at which the contractual
+cash flows discount back to the net proceeds, and charge the gap between that
+rate and the coupon. On a bullet the charge rises as the discount unwinds
+towards face; on an amortising loan it falls, because principal comes off faster
+than the discount closes. A straight line is neither, which is why it is offered
+as a choice rather than as the default — and why it is what a revolver gets
+regardless, having no principal profile to solve a rate against.
+
+The profile the rate is solved against is contractual: the amortisation schedule
+and the bullet at maturity, never the swept path. A borrower who sweeps hard in
+year one has not renegotiated the rate on the money it borrowed, and a profile
+that included the sweep would solve a different effective rate for every
+operating case the same loan was run against.
+
+The point of carrying the balance is that a refinancing writes it off. That
+figure used to be typed into the deal file, and a figure a reader cannot check
+is a figure that will eventually be wrong: Thornbury asserted 2.40 where its own
+funding table implies 2.48. `unamortised_fees` is now optional, derived from the
+paper the deal actually placed, and the memo says which of the two it printed. A
+file with a balance an accountant has already agreed still states it and is
+still believed.
+
+**A stub is part of a year, not a year of its own.** With a short period at
+close, reading an assumption series by position would hand the stub year one's
+growth and the first whole period year two's — so every column after the stub
+would be a year ahead of itself. The stub and the first whole period share a
+driver index instead. The stub trades at the rate the business is running at
+when the deal closes, prorated; growth is a whole period's assumption and is not
+applied inside it, so the base the first whole period compounds from is the base
+the deal was underwritten on.
+
+Two things follow that a model without a stub never has to decide. Interest
+needs no help, because it accrues on a day count and prorates itself — but
+contractual amortisation does: an instalment written as 1% a year is not 1% in a
+forty-five-day period, and nothing in the amortisation driver knows how long the
+period it is being read for actually is. And a stub does not certify. A
+maintenance covenant is tested on a reporting date against the last twelve
+months' earnings, and a business six weeks into a hold has no twelve months;
+measuring a whole debt balance against a part-period figure would report
+leverage several turns worse than the deal carries and breach a covenant nobody
+has breached. The stub is recorded as untested with the reason on the row, and
+the leverage line shows nothing rather than a number.
+
+**A date is stated as a period or as a year, and a file says which.** An
+assumption is read by the year a period falls in, so an operating case already
+describes the same five years however often they are reported. Everything a file
+stated as a period number was still a column, and a column is a different date on
+every frequency: `maturity: 7` retired a term loan in year seven on an annual
+grid and in quarter seven on a quarterly one, a year and a half into a five-year
+hold, with nothing raised anywhere.
+
+Reinterpreting period numbers would have been the wrong fix. A period number is
+the right unit for something that genuinely happens in a particular quarter — an
+add-on that closes in the third one — and it is not supposed to survive a change
+of frequency. What was missing was the ability to say which of the two was meant.
+So a bare number is a period, as it always was, and a number suffixed with `y` is
+the end of that year, resolved against the grid: `"7y"` is period 7 on an annual
+grid and period 28 on a quarterly one, which are the same date. Maturities,
+availability periods, event dates and a covenant's first test period all read it.
+
+The same reasoning applies to how long an assumption series is. A ramp from 8.5%
+to 3.5% across a five-year case is five numbers however often the years are
+reported, so a series is expanded over the years of the projection rather than
+over its columns. Expanding it over columns and reading it by year — which is
+what happened when assumptions first became annual — tapered the business over a
+quarter of the intended span on a quarterly grid, and cost 2% of exit EBITDA
+without raising anything.
+
+Together with the two decisions above, this is what makes a file portable: the
+shipped Meridian deal run quarterly instead of annually prices its exit on the
+same earnings at the same multiple and lands within half a per cent on debt
+outstanding and two hundredths of a per cent on equity value. The residual is
+not error — a quarterly model accrues interest over shorter periods and sweeps
+four times a year, and genuinely deleverages a little differently.
+
+**A commitment is consumed by drawing on it, unless it revolves.** A revolver
+and a delayed-draw term loan look alike in a file — both are committed at close
+with nothing drawn, both charge a fee on the undrawn balance — and they behave
+differently in the one way that matters. Repaying a revolver restores its
+capacity, because that is what revolving means. Repaying a delayed-draw facility
+does not entitle anyone to draw it again. So the two measure "undrawn" against
+different things: a revolver against the balance outstanding, a term commitment
+against the cumulative face taken down since close, which is the figure the
+amortisation basis has been carrying all along. A model that used the balance for
+both would let a borrower draw an acquisition line, repay it out of cash flow,
+and draw it again, and would bill the ticking fee at its highest on the facility
+the borrower had repaid the most of.
+
+A term commitment has to state an availability period. A revolver is available
+until it matures and already knows when that is; a delayed-draw facility lapses
+on a date whether or not anyone drew it, and without that date there is nothing
+to stop a ticking fee running for the rest of the hold on capacity nobody can
+take down. Draws are checked against the capacity that exists, walked in date
+order, because two add-ons that each fit inside a facility can still overdraw it
+between them. A tranche with no commitment stays an uncommitted accordion: there
+is nothing to check a draw against, which is an honest description of what an
+accordion is.
+
+The alternative — describing the facility as a term loan already drawn at close,
+which is what the engine used to require — is wrong three ways. Interest is
+charged on money the business does not have. Leverage is overstated from close,
+so covenant headroom and the sweep step are both struck against a balance that
+does not exist. And the ticking fee, which is the actual cost of the arrangement
+and usually a third to a half of the margin, cannot be charged at all.
+
+**A covenant is certified over the year behind the date, not over the column.**
+A maintenance test compares a stock against a flow, and a flow only means
+something over a stated interval. Every credit agreement names a year. On an
+annual grid the year is the column, which is why dividing one column by another
+was right for as long as the engine only had annual grids — and wrong by the
+frequency the moment it did not. On a quarterly grid a structure at 5.2x reads
+as 20.8x, every leverage test in the file breaches from the first certification,
+and the memo leads with a deal that fails.
+
+So the balances are the ones standing on the test date and the flows — earnings,
+cash interest, contractual repayment, capital expenditure, tax — are summed over
+the twelve months to it. The cash sweep steps on the same measure, because a
+grid that steps on leverage is asking the same question and would otherwise sit
+at its top rate for an entire hold.
+
+A date with fewer than twelve months behind it cannot certify. Nine months of
+earnings is not a conservative year, it is a different measure, and a ratio built
+on one reads a third too high — so the first three quarters of a quarterly grid
+are reported untested with the reason on the row, exactly as a stub already was,
+and the row says how long the interval actually was rather than calling it a
+year. The sweep falls back to the level the deal was priced at, which has to be a
+year of earnings too: falling back to the first entry of a trailing series would
+certify the opening structure at four times its leverage.
+
+**An assumption is annual, and a period is a share of a year.** The same deal
+file has to describe the same business whether the year is reported once or
+twelve times, and that single requirement settles four questions that look
+unrelated. An assumption series is read by the year a period falls in rather
+than by the column, so a five-year case is not exhausted in five quarters. A
+growth rate is converted before it is applied more than once a year — the rate
+that belongs in a quarter is the one that compounds to the annual figure across
+four of them, not the annual figure itself, which would grow a business 36% a
+year on an 8% assumption. A flow takes its period's share of the year rather
+than the whole of it. And contractual amortisation, written per year, is charged
+per year: 1% a year is 0.25% a quarter, on the same side of the model where
+interest already accrues on days.
+
+The year's revenue is settled first, at the annual rate, exactly as it is on an
+annual grid; the periods inside the year then divide that figure between them.
+Not evenly, because a business growing at 9% earns more in its fourth quarter
+than in its first — the shares ramp at the rate that compounds to the annual one
+and are normalised to sum to one. That buys both properties at once: the
+quarters slope, and they add back to the year exactly. Balance-sheet ratios are
+struck against the trailing twelve months rather than against a single period
+annualised, for the same reason a working-capital ratio is a stock over a year
+of sales.
+
+What follows is that revenue, EBITDA, capital expenditure, cash tax, free cash
+flow and the year-end working-capital balance agree year by year on annual,
+semi-annual, quarterly and monthly grids, and an annual model is arithmetically
+untouched. What does *not* carry across is anything a file states as a period
+number — a maturity, an add-on's closing period, a covenant's first test date.
+Those are period numbers by design, so `maturity: 7` is the seventh year on an
+annual grid and the seventh quarter on a quarterly one, and a file moved between
+frequencies has to restate them.
+
+## Licence
+
+MIT