London Analyst LBO Modelling Tests: What UK Banks and Boutiques Expect

Ace the London LBO Modeling Test: IFRS, SONIA, Tips

An LBO modeling test is a timed exercise where you build or adapt a leveraged buyout model and convert a slim data pack into decision-grade returns and credit metrics. In London, that means IFRS accounting, SONIA-based debt, and UK tax nuances with a clean audit trail. The test evaluates whether your model can stand up in front of a VP or credit committee without hand holding.

This guide explains what interviewers look for, the formats you will face, and a build order that works under pressure. Follow it and you will produce a model that balances, answers the prompt, and shows clear thinking that reviewers trust.

What the test measures and how to aim your build

Firms use the same test to evaluate different skills, so you should aim your build at the decision maker who bears the risk. Banks want throughput and low review burden, boutiques push for independent structuring and crisp outputs a client would accept, and private credit teams prize conservative service capacity and covenant headroom. Across platforms, a clean three-statement model with an LBO overlay is the baseline.

Reviewers test for accuracy under constraints, clear structuring judgment, IFRS awareness, and communication through a traceable model. A VP should be able to go from any headline metric to the underlying assumption in three clicks.

Common test formats and how to approach each

Paper LBO: No Excel, pure structure and mental math. State sources and uses, leverage, tax, free cash flow, and exit math. Pass by keeping definitions tight and arithmetic sane in 15-30 minutes.
From scratch: Blank workbook or a light skeleton. You have 60-120 minutes on site, or a three to four hour take home. Expect three to five years of history with sparse operating detail. This format tests model hygiene and triage under time pressure.
Case plus template: Historicals and partial links are prebuilt. You add debt, interest, tax, returns, and sensitivities. The focus is speed and accuracy over invention.
Credit tilted: Full stack with SONIA pricing, sweeps, waterfalls, and covenant tests. Equity outputs matter, but you pass on DSCR, interest cover, and leverage consistency.

What good looks like in London

IFRS-first statements: Handle IFRS 16 leases correctly. EBITDA excludes lease depreciation and lease interest. EBIT includes lease depreciation but not lease interest. Tests still follow IFRS 16 layouts even with IFRS 18 on the horizon.
SONIA-based floating debt: Use SONIA plus margin or the given all in rate. Do not revert to LIBOR or SOFR.
UK tax simplicity: Model corporation tax at the main rate. Apply the Corporate Interest Restriction only if asked. Keep it transparent and easy to audit under time pressure.
Hygiene beats flourish: Inputs-only tab, blue-for-inputs and black-for-formulas, modular schedules, no orphan hardcodes. The balance sheet must balance every period.
Decision-useful outputs: Sources and uses, fully linked debt schedule with cash sweep and revolver, base case IRR and MOIC, plus a compact sensitivity table. For credit, add DSCR, interest cover, and FCCR using the case definitions.

Deliverables and data pack: stay decision focused

Expect historical P&L, cash flow, and balance sheet by year, a short deal context, debt instruments and pricing, and specific definitions for EBITDA, net debt, and covenants. Some cases ask you to propose a financing package. You will deliver an Excel model with separated inputs and three statements, sources and uses, debt, interest and taxes, returns, and sensitivities. Include a summary of equity check, entry multiple, leverage at close, IRR and MOIC, and one or two standard sensitivities. Occasionally there is a one page memo on the investment case and risks, but the model carries the grade.

Build order that works under time pressure

Read and tag definitions: If EBITDA excludes stock based comp or lease impacts, label it on the inputs tab. If CIR applies, mark it clearly.
Set a single assumptions tab: Timing flags, accounting choices, capex and D&A, working capital drivers in days or percentages, and headline tax.
Build sources and uses: Set equity, fees, and opening net debt. Add facility limits and margins.
Lay down the income statement: Revenue, margins, D&A, EBIT, interest placeholder, tax placeholder, and net income.
Model working capital and CFO: Use DSO, DPO, and DIO or conservative percentages if data is thin.
Create capex and D&A schedules: Separate maintenance only if the pack supports it.
Construct the debt schedule: Tranches, opening, draws, amortization, cash sweep, interest on average balance, PIK where relevant, fees, and closing.
Close the loop on interest and taxes: Decide how to handle circularity. If you enable iterations, say so on the model and keep it stable.
Complete cash flow and balance sheet: The cash line should be the only plug by design. Eliminate any other plugs.
Build returns and sensitivities: Base IRR and MOIC, then a 2×2 or 3×3 on entry and exit versus growth or margin. For credit, show headroom in downside.

London debt mechanics and SONIA interest math

Senior term loan + RCF: SONIA plus margin, interest on average balance unless instructed otherwise. Revolver usage should swing with cash needs.
Unitranche loans: Single tranche, higher all in rate, lighter amortization, and often a cash sweep. Some cases include a PIK toggle in stress. For context on market terms, see Unitranche Loans: Pricing, Structures, Terms.
Holdco PIK: Check rank ordering and keep PIK out of opco covenants if the definition excludes it.
Shareholder loan: Accrual interest inflates MOIC. Park the assumption on the summary to avoid confusion.

SONIA is compounded in arrears, but tests usually give a period rate or an all in. If you get “SONIA + 350 bps,” compute the all in per tranche and apply it to average balances. Treat upfront fees as uses. Amortize arrangement fees through interest expense only if the prompt requires it. Do not model daily compounding unless asked. Time saved lowers error risk.

Quick UK pricing example: if SONIA is 5.20 percent and the margin is 350 bps, the all in is 8.70 percent. On a £200 million average balance, cash interest is £17.4 million. If a 200 bps PIK toggle applies, it accrues £4 million to principal. Reflect any split between cash pay and PIK only if the prompt specifies it.

IFRS touchpoints and UK tax that trip candidates

Leases under IFRS 16: Keep EBITDA and EBIT definitions straight. For net debt and leverage, follow the case on whether lease liabilities are included.
Goodwill and intangibles: Do not amortize goodwill. Only create identifiable intangibles and amortization if the pack provides them; otherwise keep goodwill clean.
Cash taxes and CIR: Start from pre tax income, adjust for non cash items and disallowables. If CIR applies, cap deductions at 30 percent of tax EBITDA or use the group ratio if provided. Track disallowed interest in a memo account.

Covenant definitions and headroom framing

Define net debt clearly and repeat it on the debt tab and summary. Build leverage, interest cover, DSCR, and FCCR using the case’s definitions and exclusions. For a quick market primer on terminology like FCCR and springing covenants, see Essential Private Credit Covenants.

Leverage: Net debt divided by EBITDA or “Covenant EBITDA” if defined.
Interest cover: EBITDA divided by cash interest. Exclude PIK if the case excludes it.
DSCR: EBITDA minus capex and cash taxes divided by total scheduled debt service, if required.
FCCR: EBITDA minus maintenance capex and cash taxes divided by interest plus required amortization.

Sensitivities that a reviewer can digest in 15 seconds

Use a small table on entry and exit multiple and one operating driver such as margin or growth. For credit cases, add a table that varies EBITDA and capex to show interest and amortization headroom. A clean 2×2 beats a messy 5×5. If you want to see an IB style approach, review Excel sensitivity tables and how they are laid out.

Formatting and documentation that reduce review time

Simple color legend: Inputs in blue, formulas in black. No rainbow coding.
Modular tabs: Assumptions, P&L, cash flow, balance sheet, D&A and capex, working capital, debt, returns, sensitivities, and summary. If time is short, combine schedules but keep headers clear.
Inputs tab discipline: Use an inputs-only sheet for all one offs. This checklist helps: audit ready inputs tab.
Compatibility first: Named ranges only for scenario controls and key flags. Macros off unless told otherwise. Favor Microsoft 365 functions you can confirm.
Iterative calc as last resort: Turn it on only if needed for interest and taxes and state the setting up front.

Boutiques vs. banks: adjust expectations

Boutiques often expect a from scratch build, clean cash waterfall ordering, explicit exit math, and a wider scenario range. Large banks may use a modified template and judge speed and error rate over creativity. LevFin and private credit want ironclad debt modules, crisp definitions, and covenant headroom you can defend.

Scoring rubric: hits, misses, and immediate fails

Must haves: Balanced balance sheet, sources and uses that reconcile, consistent EBITDA across metrics and covenants, and sound interest and tax logic.
High value extras: Compact summary, clear flags for assumptions, and brief notes on any departures from standard practice.
Immediate fails: Hardcoded interest expense, net debt that excludes required items, negative cash not flowing to the RCF, unnoticed circularity, or broken sensitivity references.

Working capital and VAT: keep it lean

Most tests ignore VAT. Keep working capital to receivables, inventory, and payables. With thin data, use conservative ratios and show a sensitivity on working capital intensity. Do not invent balances to bridge gaps. If you need a refresher on mechanics, see this cash flow linkage guide.

IFRS vs. US GAAP: align to London

Use IFRS lease logic, no goodwill amortization, and IFRS presentation for interest and taxes. If you receive US GAAP history, translate EBITDA and EBIT definitions so your model remains IFRS consistent. Reviewers in London expect IFRS alignment.

Common pitfalls and rules of thumb

Signs and flow: Cash generation should reduce net debt unless the RCF is fully repaid and cash builds.
Working capital that moves: Days should anchor balances, and growth should change them.
Tax on the right base: Apply tax to cash taxable income, not raw EBT with non deductibles.
Stable EBITDA definitions: Do not let definitions drift across tabs. That breaks covenants and returns.
No overbuilding: If a schedule does not change a decision, skip it. Time saved reduces error risk.
No circularity without control: Use average debt approximations if iterations are off and state the choice.
No opaque hardcodes: Inputs or formulas only. Any one off adjustment lives on the inputs tab.
No undocumented addbacks: Use only what the case allows and show them clearly.

Reviewer’s 90 second scan: design for it

Busy reviewers scan in a predictable order. First is sources and uses for reconciliation and fee treatment. Next is the debt schedule and covenants for consistency and headroom. Then IRR and MOIC with a simple 2×2. Finally they trace one item to inputs to test auditability. Build your summary and tab order to match this flow and you will reduce questions by half.

Test timeline and quick checklist

Before the test: Confirm Excel version, whether macros and iterations are allowed, and file submission rules. Two minutes avoids confusion later.
During the test: Read and mark definitions for five minutes. Build in the sequence above. Keep a checklist of outputs and checks. Save versions every 10 minutes.
After the test: Be ready with a two minute walkthrough of structure, key assumptions, and your downside case.

London vs. New York and continental Europe

London leans on SONIA, IFRS 16 lease treatment, UK tax, unitranche and holdco PIK options, and a heavier covenant focus on credit desks. New York centers on SOFR, US GAAP leases, and IRC 163(j). Continental Europe shares IFRS but often adds local tax and holdco constraints. Build for the jurisdiction you are in.

If the clock wins: minimum viable submission

Submit a balanced model with sources and uses, three statements, a functioning debt schedule, base case IRR, and one 2×2 sensitivity on entry and exit. Add a short note on any simplifications, especially tax and leases. A compact, coherent model beats a sprawling one with breaks. For an approach to building under time pressure, see a lean LBO model.

Preparation that pays

Practice a full build: Do one clean, from scratch LBO to a one hour standard until you can balance, compute returns, and produce a 2×2 without a template.
Drill UK mechanics: SONIA pricing, RCF usage, and a portable CIR overlay.
Excel fundamentals: Refresh keyboard shortcuts and formula basics you will actually use under pressure. If you cannot confirm 365 functions on the test machine, fall back to INDEX MATCH.
Debt and PIK logic: Rehearse PIK interest compounding and toggle logic so you do not improvise on the day.

One extra tip: if the case mentions equity cures, add a single line in the debt and covenant schedule to show how a cure would affect headroom in downside. It is optional, but it signals documentation awareness.

Closing Thoughts

Model for the owner of the risk, use IFRS and SONIA correctly, and keep definitions tight. Then deliver traceable logic, clean debt math, and a simple sensitivity that summarizes outcomes. If you hit those marks, you will pass more often than not.