OpCo: LBO exit waterfall with an option pool
A leveraged buyout's exit waterfall, splitting proceeds between an accruing preferred, rolled-over management equity and a laddered management option pool.
Every number below is checked against an independent reference implementation on every commit — period by period, and on each metric, inside a declared tolerance. See benchmark methodology.
The case
The exit waterfall of a sponsor buyout: an accruing convertible preferred, a management rollover, and a seven-tranche management stock option pool with strikes laddered from $12.50 to $25.00.
An option tranche pays if it is in the money — if the exit consideration per share exceeds its strike. But exercising a tranche adds both its strike proceeds and its shares to the pool, which moves the value per share. So which options exercise depends on the value per share, and the value per share depends on which options exercise.
The reference
A seven-step leveraged buyout teaching model published as a downloadable spreadsheet, free and without registration. Its waterfall sheet publishes the exit enterprise and equity value at six exit multiples, the in-the-money test per tranche, option proceeds, share counts, the resulting value per share, and the split of proceeds between sponsor and management.
Not redistributable. The workbook carries an "All Rights Reserved" notice, so it is neither vendored nor wired into the test suite.
What it exercises
| Pack | opco |
| Declared | seven options, two states, four native streams |
| Language features | options with an exercise test and a payoff; declared state read by an option guard |
| Conventions | a preferred accruing 8% and converting one-for-one, a management rollover, laddered option strikes, dilution at exit |
Two tranches are out of the money, so the case asserts a non-exercise as well as an exercise.
The result
Value per share 20.877119, sponsor proceeds 487.546139, management proceeds 132.569706 — each matching the published figure exactly. Option intrinsic value comes to $12.912m across the five exercised tranches.
Verified at all six published exit multiples; the exercising set is unique at every one.
The delta
None.
The circularity resolves without iteration because the strikes are ordered: if a $20.00 option is in the money then so is every cheaper one, so any exercising set is a prefix of the tranches sorted by strike. That reduces 128 possible subsets to eight candidates, exactly one of which is self-consistent — a finite ordered test rather than a search.
Run configuration
{
"deterministic": {
"annual_discount_rate": 0.0
}
}Verified results
Checked period by period: 12 series across 1 periods — 12 values in all, each within ±1e-6 of the reference.
asset.target.value_per_shareopco.exit.equity_valueopco.exit.option_proceedsopco.exit.sponsor_proceedsopco.exit.management_proceedsoption.mgmt_options_12_50option.mgmt_options_14_00option.mgmt_options_15_00option.mgmt_options_17_50option.mgmt_options_20_00option.mgmt_options_22_50option.mgmt_options_25_00