Module VI· Debt Schedule MechanicsIntermediate
Question
How do you model a floating-rate tranche such as EURIBOR plus margin?
Answer
Interest rate equals base rate plus margin, usually with a floor. Forecast EURIBOR / base rate, add margin, apply floor if needed, and multiply by average or beginning debt balance. If hedged, split floating exposure into hedged and unhedged portions. Sensitize base rates because floating-rate debt affects cash interest and debt capacity.