The debt rating section of the merger model, looks to compare the debt levels prior to the deal of the acquirer and target With the debt levels of the combined entity after the deal We're worried that if the debt levels go up too much, then the credit rating will go down and the financiers won't like the deal Financiers will run a mile So let's start by looking at the debt/EBITDA of the acquirer We can see there debt was 300, divide by the EBITDA of 156 They've got a debt multiple of 1.9 I can do exactly the same for our target, debt divided by EBITDA. They've got a debt multiple of 2 So prior to the deal, they've both got very similar levels of debt compared to their earnings Now let's see what happens after the deal I want to start by taking the EBITDA of the acquirer, plus the EBITDA of the target And I want to add on any transaction effects, and there's going to be one in this case. We had some synergies So I scroll all the way up to the top, to the assumption section And there's our synergies of 5, so the EBITDA has improved Great! So we're looking at EBITDA of 181, now I want to do the same for debt I start by taking the debt of the acquirer plus the debt of the target But I then ask myself, "Hang on, is that target debt still there?" Well actually we're going to refinance that, it's in our sources and uses of funds There it is, the existing net debt has been refinanced What about any new debt? Well we've also got the revolving credit facility being taking on of 10. And we've got the new debt funding of 176.6 Fantastic! There's our new level of debt, we can now calculate our debt to EBITDA And its now 2.7, I can see that increased quite a bit since the deal We need to be wary of this and make sure that that increase in the debt multiple, doesn't decrease out credit rating too much