A Practical Career and Implementation Guide to Special Situations, Restructuring and Recovery
Julian R. Sterling
Four Excel workbooks. Chapter 11 sets out what a recovery model must do: drive everything off
a small number of visible assumptions, and build the waterfall so that changing enterprise value
re-identifies the fulcrum by itself rather than by hand. These files are built to that
specification, and they reproduce every recovery the book prints.
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Everything described below is inside it, with the read-me.
The four workbooks
Chapters 5, 6 and 11
The fulcrum finder
A capital structure, an enterprise value, and a waterfall that names the fulcrum by
arithmetic. The Chapter 6 manufacturer at $600M — DIP and admin at par, first lien at
par, senior unsecured at 60 cents, subordinated at zero — and both flexes that chapter
runs: at $750M the unsecured recover par and the break drops into the subordinated notes; at
$450M the first lien takes everything and the unsecured go to zero. A ladder across seven
enterprise values shows the break migrating in a single view. The Appendix B structure is
worked alongside its market prices, including the two flexes to 450 and 780.
Fulcrum_Finder.xlsx · XLSX · 22 KB
Chapters 4 and 11, Appendix E
Recovery, frictions and return
The transparent model of Chapter 11: enterprise value of 700, fee leakage of 40, a DIP of
100, and the fulcrum moving out of the unsecured notes and into the second lien as a
consequence — which, as the chapter says, is the difference between the security you want
to own and a zero. Then what an 80-cent headline is worth when it arrives as 30 cents of cash
and 50 of face in takeback notes trading at 90: 75 cents, and a 22% annualised return over two
years that falls under 10% if the process runs five. The one-turn-of-multiple sensitivity, where
the senior claims do not move at all and the fulcrum swings from zero to 67 cents. And both
worked examples of Chapter 4, each ending with the break-even recovery and the cushion.
Recovery_and_Return.xlsx · XLSX · 23 KB
Chapters 8 and 14, Appendix A
Valuation, the liquidation floor and diligence
The mid-market industrial company valued segment by segment — a fair multiple on
normalised earnings for the healthy segment, trough earnings and a trough multiple for the weak
one — reaching $535M with a range around it. The liquidation floor built independently at
$330M. Then both tranches set against both scenarios on one page: the first lien covered on both
grounds, the notes recovering 27 cents in the going concern and nothing at all in liquidation.
The 27-question diligence checklist of Appendix A is attached as a working document that will
not report itself ready while an answered question has nothing written against it.
Appendix B prints a capital structure, three market prices and three enterprise values,
and concludes that these are “three very different bets”. It never prices one of
them — it computes recoveries and never divides one by the price two lines above.
Appendix E supplies the missing arithmetic on a different structure. This workbook joins
them. It finds that at the book’s own downside of 450 the fulcrum loses 30.6
per cent while the first lien makes 8.7; that the three prices imply three different
enterprise values — 322, 494 and 668, a spread worth 43 per cent of the claims
outstanding; that the best trade changes hands at exactly 506.5 and 687.5; and that a
priming DIP of 80 with 40 of fees turns the fulcrum’s 74 per cent gain into a 10 per
cent loss on the same enterprise value. 121 controls, all live.
Which_Tranche_To_Buy.xlsx · XLSX · 22 KB
Conventions used throughout
Blue text
a hardcoded input — you may edit these
Black text
a formula — do not overtype these
Green text
a link to another sheet
Yellow fill
the assumptions that carry the answer
Why the fulcrum finder is the one to open first
Chapter 11 is unusually specific about model construction: "build the waterfall so that
changing EV automatically re-identifies the fulcrum; the tranche where value breaks should fall
out of the arithmetic, not be hard-coded by hand, because the whole point is to watch it migrate
as assumptions change."
That is what the status column does. Type one number into one cell and the label moves. At
$450M the first lien is the boundary; at $600M the senior unsecured notes are the fulcrum at 60
cents; at $750M the break has dropped to the subordinated notes that a moment earlier were worth
nothing.
A position sized on a fulcrum thesis is a position sized on one number. The sheet exists to
make you look at how far that number can move before the thesis stops being true.
Opening the files
The workbooks open in Microsoft Excel, LibreOffice Calc, Google Sheets and Numbers. They use
no macros and no add-ins, so nothing needs to be enabled or trusted. If your spreadsheet asks
to update links on opening, decline — there are none.
Articles on this book
Two of the calculations in these workbooks, worked out in full.
All articles.
Closing the DealTwo defensible bridges 20.70 million apart, a peg worth 7.00 million, and the six choices that remove 6.60 of a 12.00 earn-out.
CMBS and CRE CLOsWhere the loss actually lands, from appraisal reduction to realised severity, and what the B-piece is really being paid for.
How to Read a Commercial LeaseThe three refinements chapter 19 names and never performs, and the renewal rate below which the mark-to-market is worth nothing.
How to Read a Credit AgreementWhere the default actually comes from, the cure that costs 5.5 times the other, and the capacity nobody adds up.
How to Read a Real Estate Loan AgreementThe cure ratio in closed form, the four-point window in which the cheap cure works, and the cure sized to the wrong threshold.
Office Real EstateA six per cent yield that returns 3.2 per cent once the re-letting cycle is paid for, and the headline-to-net-effective rent arithmetic.
Private Equity Real EstateBoth worked waterfalls to the dollar, the two capital stacks, and the arithmetic of the promote made changeable.
Private Markets PerformanceThirty-one of the thirty-three figures chapter 19 publishes reproduce exactly — and the two that do not are named rather than quietly adopted.
Raising a Real Estate FundThe chapter 17 funnel run on a calendar — when the first close actually lands, and why more travel does not help.
Real Estate FinanceFour people look at one building and reach four numbers; the lender is whole only above 105,109,489, twelve per cent below today’s value rather than forty.
Real Estate Financial ModelingProperty, development and fund models built line by line, and the modelling test worked end to end.
Real Estate Fund ManagementThe waterfall of 6.11, the build-to-core of 8.7 and the proceeds gap, reproduced as live formulas rather than asserted.
REIT Analysis and ValuationFFO of 532.0, AFFO of 381.0, net asset value and dividend safety — every figure a formula you can change.
Retail Real EstateThe occupancy cost of every unit in a centre, the sixteen per cent of the rent roll no tenant can sustain, and the right-size-convert-or-hold decision priced.
Sale and LeasebackA €179.5 million transaction end to end, with rent cover measured on the entity that actually signs the lease.
Self-Storage Real EstateThe cohort engine behind a 590-unit store, and the rate increase on existing customers priced against the move-outs it causes.
The Fund Finance ProfessionalChapter 8 builds the reported-to-eligible NAV bridge; chapter 9 computes every ratio without it. Two points at every state — and what a subscription line does to the IRR.
The Growth Equity InvestorWhat a pro rata cheque really costs, and the band where defending your ownership loses money.
The Private Credit InvestorThe two coverage ratios are not measured on the same thing: the erosion is 47.7 per cent, not the 28.7 the headline implies.
The Private Equity Fund Controller PlaybookThe book defines IRR, DPI, RVPI and TVPI, tells you to update them at the exit, and prints not one value. Computed: a 1.833× deal inside a fund at 0.892 TVPI.
The Venture Capital AssociateWhat defending a position costs, and how many companies a reserve pool actually defends.
Financial Risk ManagementA fund inside every limit that cannot meet a redemption — and the number that decides it is the one with no currency attached.
Business ValuationThree advisers land 26.8 per cent apart on one company, and the whole gap turns out to be 1.96 points of perpetual growth.
Quantitative FinanceThree models agree to a quarter of one per cent about a number that one unobservable input moves a hundred and three times as much.
Asset ManagementFour people quote four returns for one mandate, all correct and 2.7017 points apart — forty-eight times the manager’s net skill.
Alternative InvestmentsA manager reports 13.29 per cent and the endowment earns 6.26 — both correct, and only a third of the advertised advantage arrives.
Credit AnalysisFour defensible EBITDAs on one borrower give leverage from 3.19x to 6.47x — and the add-back argument is fifty times the covenant headroom.
Venture CapitalOne company out of twenty-eight returns 56.7 per cent of the fund, and half the capital goes in after the decision — at half the return.
Machine Learning for FinanceFive people quote the accuracy of one credit model, all five are right, and the number that decides how much money it makes is none of them.
Commercial Real Estate InvestingThe equity earned 8.6647 per cent and the investor received exactly 8.0000 — the preferred return, and nothing above it.
Mergers and AcquisitionsThe board paper says the deal creates 13,436,667 of value. The arithmetic says it destroys 17,530,855. Nobody is lying.
DerivativesThe treasury report says the hedge cost 1,233,698. That is the interest differential, not a cost.
Treasury ManagementFive cash balances for one company, all correct and 145,600,000 apart — and the revolver that is two-thirds of the liquidity leaves at a revenue fall of 8.4127 per cent.
Financial Planning and AnalysisRevenue 3.0190 per cent above budget and operating profit 16.3209 per cent below it, in the same quarter, with every figure correctly stated.
Energy TradingA position report that is 91.7031 per cent hedged and correctly computed, on a book that is short 2,542,000 MWh — and a margin call of 198,400,000 the next morning.
Construction Cost ControlA contract sum of 26,301,102 became a final account of 29,153,363 on the building that was drawn — and 85.8 per cent of what was lost was knowable on the day it was signed.
Pricing StrategyA list price of 148.00, a pocket price of 112.51, and the nine deductions in between — with what one point of price is actually worth.
Also by Julian R. Sterling
The other books with companion files. The full list of titles is on the
author page.
How to Read a Commercial LeaseThe three refinements chapter 19 names and never performs, and the renewal rate below which the mark-to-market is worth nothing.
How to Read a Real Estate Loan AgreementThe cure ratio in closed form, the four-point window in which the cheap cure works, and the cure sized to the wrong threshold.
The CBAM Compliance HandbookWhat 2027 really costs, how big the buffer should be, and the term the surrender formula counts twice.
Private Markets PerformanceThirty-one of the thirty-three figures chapter 19 publishes reproduce exactly — and the two that do not are named rather than quietly adopted.
The Private Equity Fund Controller PlaybookThe book defines IRR, DPI, RVPI and TVPI, tells you to update them at the exit, and prints not one value. Computed: a 1.833× deal inside a fund at 0.892 TVPI.
The Private Credit InvestorThe two coverage ratios are not measured on the same thing: the erosion is 47.7 per cent, not the 28.7 the headline implies.
The Real Estate Debt InvestorThe margin against the return on capital, the floor priced, and what prepayment protection buys.
The Fund Finance ProfessionalChapter 8 builds the reported-to-eligible NAV bridge; chapter 9 computes every ratio without it. Two points at every state — and what a subscription line does to the IRR.
Office Real EstateA six per cent yield that returns 3.2 per cent once the re-letting cycle is paid for, and the headline-to-net-effective rent arithmetic.
Real Estate FinanceFour people look at one building and reach four numbers; the lender is whole only above 105,109,489, twelve per cent below today’s value rather than forty.
Retail Real EstateThe occupancy cost of every unit in a centre, the sixteen per cent of the rent roll no tenant can sustain, and the right-size-convert-or-hold decision priced.
Sale and LeasebackA €179.5 million transaction end to end, with rent cover measured on the entity that actually signs the lease.
Self-Storage Real EstateThe cohort engine behind a 590-unit store, and the rate increase on existing customers priced against the move-outs it causes.
Financial Risk ManagementA fund inside every limit that cannot meet a redemption — and the number that decides it is the one with no currency attached.
Business ValuationThree advisers land 26.8 per cent apart on one company, and the whole gap turns out to be 1.96 points of perpetual growth.
Quantitative FinanceThree models agree to a quarter of one per cent about a number that one unobservable input moves a hundred and three times as much.
Asset ManagementFour people quote four returns for one mandate, all correct and 2.7017 points apart — forty-eight times the manager’s net skill.
Alternative InvestmentsA manager reports 13.29 per cent and the endowment earns 6.26 — both correct, and only a third of the advertised advantage arrives.
Credit AnalysisFour defensible EBITDAs on one borrower give leverage from 3.19x to 6.47x — and the add-back argument is fifty times the covenant headroom.
Venture CapitalOne company out of twenty-eight returns 56.7 per cent of the fund, and half the capital goes in after the decision — at half the return.
Machine Learning for FinanceFive people quote the accuracy of one credit model, all five are right, and the number that decides how much money it makes is none of them.
Commercial Real Estate InvestingThe equity earned 8.6647 per cent and the investor received exactly 8.0000 — the preferred return, and nothing above it.
Mergers and AcquisitionsThe board paper says the deal creates 13,436,667 of value. The arithmetic says it destroys 17,530,855. Nobody is lying.
DerivativesThe treasury report says the hedge cost 1,233,698. That is the interest differential, not a cost.
Treasury ManagementFive cash balances for one company, all correct and 145,600,000 apart — and the revolver that is two-thirds of the liquidity leaves at a revenue fall of 8.4127 per cent.
Financial Planning and AnalysisRevenue 3.0190 per cent above budget and operating profit 16.3209 per cent below it, in the same quarter, with every figure correctly stated.
Energy TradingA position report that is 91.7031 per cent hedged and correctly computed, on a book that is short 2,542,000 MWh — and a margin call of 198,400,000 the next morning.
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