How do LBO folks arrive at forecast for interest rates?

I'd imagine that the interest rate is a highly sensitive input for IRR in leverage heavy transactions

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There are prevailing market interest rates that you can find by looking at companies that recently issued debt with similar financial and operational profiles

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It’s not that big of a driver really. It’ll knock a few percentages of IRR but won’t make or break a deal.

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WACC

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The big driver is the proceeds from the exit (which is an EBITDA multiple and debt service doesn’t really matter). LBOs I’ve worked on don’t even count annual FCF towards IRR / returns.

To answer your question, I think it’s pretty common to just assume that interest expense is fixed (and it often is).

Sounds like your experience is based on SoftBank style idiot tech investing. If one of our new associates told me he didn’t model an annual FCF I’d show them the door lol.

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Forward LIBOR

When you model to assess a deal, you'll look at pricing comps (ie checking where have other similar companies priced at, with criteria such as the sector, the leverage, the rating, the business model). You don't "forecast" an interest rate. You're a taker of the margin you manage to price the credit at.
Kinda repeating what SA1 said

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