Debt Financing Simulation

Teach debt financing as a capital structure decision, not a list of loan terms

Students connect debt capacity, capital structure and lender protection through the refinancing of a private equity-backed software company.

3 - 5-hour team-based simulation
Analysis and deal finalisation
In-class, online or hybrid delivery

Teach the full refinancing decision in context

Softie, a software company, wants to refinance part of its capital structure that involves debt capacity, pricing, maturity, repayment, seniority, security and covenants. Students take on the roles of either a lender or borrower and use company, financial and market evidence to prepare competing financing positions before finalising the debt package.

Role-based negotiation

Students experience the different incentives of borrowers and lenders.

Evidence-led structuring

Terms must be supported by company performance, capital structure and market benchmarks.

Complete deal outcome

Both sides must agree the full package, not a series of disconnected terms.

At a glance

Duration

Approximately 3 hours

Intro is 6 minutes, Analysis and Structuring are 90 minutes each, and Reflection is untimed.

Format

Role-based refinancing

Lender and borrower teams negotiate a complete financing agreement.

Level

UG, PG and MBA

Use it in undergraduate, postgraduate and MBA-level finance teaching.

Professor tools

Admin dashboard included

Control the timeline, access teaching resources, manage participants and review decisions.

Prerequisites

Basic debt and equity knowledge

Students should ideally understand the fundamental differences between debt and equity financing.

Delivery

Classroom, online or hybrid

Run it in class, remotely, across sessions or within a defined homework period.

Optional assessment

Optional supporting evidence

Team decisions, agreement status and comparative outcomes can support academic judgement.

Syllabus fit

Corporate finance and capital structure

Fits well within modules covering corporate finance, capital structure, debt financing, banking and finance, and leveraged finance.

Structure the loan as one complete financing package

Students bring together pricing, repayment, security, seniority and covenants while balancing the competing priorities of borrowers and lenders. Each term affects the others and must be evaluated as part of one coherent debt financing decision.

Diagram showing the loan as one complete financing package

Debt Financing simulation gameflow and stages

Stage 1

Intro | 6 minutes:

Students watch the introductory video and review the simulation purpose, their assigned role and the objectives they must pursue. The professor confirms access and starts the simulation.

Stage 2

Analysis | 1 hour 30 minutes:

Teams review the Information Memorandum, company evidence and industry comparables. Borrower teams prepare borrower-friendly terms, while lender teams prepare lender-friendly terms and a negotiation strategy.

Stage 3

Structuring | 1 hour 30 minutes:

Lenders enter the proposed terms and borrowers accept, challenge or seek changes. Both sides respond to alerts and news while negotiating the loan amount, pricing, maturity, repayment, security, guarantees, seniority, covenants and other protections. All required terms must be agreed before the deal can be finalised.

Stage 4

Reflection | No time limit:

Students review the final lender terms, borrower proposal, performance summary and feedback. Professors can compare outcomes across negotiation groups and discuss the assumptions and concessions that shaped each package.

Why professors use it

Teach capital structure as an integrated decision

Students connect leverage, pricing, maturity, repayment, seniority, security and covenants within one coherent refinancing package.

Make student reasoning visible

Different assumptions about EBITDA, debt capacity and risk produce decisions that you can challenge, compare and discuss.

Create evidence for comparison and debrief

Final terms and group outcomes provide concrete evidence for feedback, reflection and optional assessment.

What the experience looks like

Professors manage timing, participants and progress through the Admin Panel, while students use role guidance, case evidence, financing inputs and final outputs in the Student Interface.

Control the timeline

The timeline displays the stages and allocated durations. Professors can start automatic progression, adjust the pace, pause the activity or stop access between sessions.

Prepare with built-in resources

The Admin Guide provides setup and facilitation guidance, the full Teaching Notes and the Gameflow Diagram. Player Management and Live Monitoring are available from the same workspace.

Run and manage the session

Play starts automatic progression. Pause holds the timer in the current stage. Stop locks student screens.

Case materials students work with

Students receive a common case context and tailored role information. The materials combine quantitative evidence, such as financial and operating data, with qualitative stakeholder arguments and policy information. Teams identify the evidence relevant to their role, test its implications and use it to support a credible negotiating position.

Company performance and capital structure

Students examine Softie's business, ownership, reported and adjusted EBITDA, acquisition assumptions, asset base, existing debt and legal-entity structure.

Industry comparables

Students use software-company performance and leverage data to test whether their proposed debt level and financing terms are commercially defensible.

6 mins

Student Intro Video

Watch the briefing students see at the start of the simulation. It introduces the case, clarifies the strategic challenge and prepares both roles to analyse evidence and defend a decision.

Assess the financing decision, not just the final deal

Assessment is optional. Professors may run the simulation as an ungraded applied activity, use the outcomes for formative feedback or incorporate selected outputs into a wider assessment design. Platform data can support academic judgement, but it should not automatically replace it.

What professors can assess

• Debt-capacity judgement
• Financing-package quality

How to interpret the results

• Read the terms as one package
• Compare like roles and negotiation groups

What professors can assess:

Debt-capacity judgement: Review whether the loan amount, leverage and maturity position are defensible in light of Softie's earnings, existing debt and market comparables. The platform records the resulting terms, but it does not confirm which individual student selected or relied on each item of evidence.
Financing-package quality: Assess whether the final terms form a coherent agreement. Amount and interest should be considered alongside maturity, repayment, structural priority, security, covenants and other protections.
Optional individual assessment report: Students may be asked to submit a short written report outside the platform once they have reviewed and reflected on their outcomes. This is not automatically captured or graded by the simulation.

How to interpret the results:

Read the terms as one package: Interpret the amount, pricing, maturity and repayment structure together with seniority, security, covenants and default protection.
Compare like roles and negotiation groups: Lenders and borrowers pursue different objectives. Interpret each side's result within the relevant role context and compare complete packages rather than isolated terms.

Set up the negotiation, then let the simulation run

The simulation can run as one intensive activity, across several teaching sessions, as homework within a defined period or through a hybrid combination of classroom and independent work. Coaching is optional.

Step 1

Set up participants, teams and roles

Create lender and borrower teams of 3 to 5 students, then pair one team from each side into an independent negotiation group.

Step 2

Configure timings and session settings

Set the approved stage timings to suit an intensive activity or a delivery spread across several sessions.

Step 3

Start the simulation and manage the controls

Press Play for automatic progression. Pause provides more working time, Stop suspends access, and Play resumes the activity. Adjust changes the pace or timeline position.

Step 4

Monitor progress and prepare the debrief

Review student inputs, coach selectively without revealing a preferred answer, and use the final group outcomes to structure comparison and reflection.

Professor Resources

Everything needed to prepare, run and debrief the Debt Financing Simulation is organised within the resources below.

Debt instruments
Debt versus equity financing
Debt terms
Debt covenants
Debt issuance and refinancing
Capital structures
Debt capacity and leverage
Security and guarantees
Seniority and subordination
Covenant types
Change of control
Events of default

Creators of the Debt Financing Simulation

These industry professionals were involved in the inception, creation, development, testing and optimisation of the simulation.

Over 15 years of experience across advisory, PE, VC, family offices, and entrepreneurship. Covered M&A transactions from multiple angles and holds a PhD in Corporate Finance.

Olaf Rottke

Investment banking, capital markets, PE, and corporate ratings experience at Morgan Stanley, S&P, and HPS Investment Partners. Holds a PhD in Quantitative Finance.

Gerhard Wörtche

Worked in the finance department of Precomp Tools. Studied Engineering and holds an MSc in Corporate Finance from Bayes.

Aatmay Upponi

Corporate finance experience across M&A, structured finance, credit risk, and leveraged finance at Morgan Stanley, SMBC, and Citi. Holds a BSc in Economics.

Georgi Naydenov

Investment banking experience across UBS, Morgan Stanley, and Deutsche Bank. Studied Mathematics at Saratov University.

Andrey Simonov

FAQs

Students must connect the amount of debt to the borrower’s earnings, existing obligations, comparable financing evidence and ability to service and repay the proposed structure. A larger facility may provide more immediate funding but can create an unsustainable amortisation profile, excessive leverage or tighter lender protections. The simulation therefore frames debt capacity as a judgement about affordability and downside resilience, not as the maximum amount a lender is willing to quote.

Debt amount, margin, maturity, amortisation, seniority, security, guarantees and covenants interact. A lower interest rate may be accompanied by faster repayment or more restrictive controls, while a longer maturity may require stronger protection for the lender. Looking at one term in isolation can therefore misrepresent the economics and risk allocation of the deal. Professors can ask students to explain the complete trade: what flexibility the borrower gained, what protection the lender received and whether the package is internally coherent.

Covenants allow the lender to define financial boundaries and required behaviours while the borrower seeks enough flexibility to operate the business. Students must consider which risks genuinely need protection, how restrictive the tests should be and what happens if performance deteriorates. This turns covenant design into a trade-off between early warning and operational freedom. It also helps professors link financial covenants, affirmative and negative undertakings, default provisions and the wider structure of the loan.

Completion shows that both sides found the package acceptable, but it does not show that value and risk were evenly allocated. A lender-friendly outcome may contain stronger protection, higher pricing or faster repayment; a borrower-friendly outcome may preserve flexibility or reduce financing cost. Professors can compare teams representing the same role and ask which concessions produced the result, whether those concessions were necessary and whether the package would remain defensible under a downside scenario.