The Valuation of Private Debt Investments: A Fair Value Update
BVR's Special Series on Fair Value
Tuesday, February 12, 2019
10:00am-11:40am PT • 1:00pm-2:40pm ET
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- Overview of the state of investment in private debt in the US based on the latest data
- Definition of fair value and unit of account under ASC 820 and implications for debt valuation
- Overview of key sources for the most recent guidance on valuation of private debt investments and insight in the context surrounding the recent activity in this area (AICPA, FASB, IVSC)
- Yield and return concepts
- Broker quotes and debt valuation
- Review of key credit rating systems and descriptions
- List of key data sources and reference materials for private debt valuation
- Valuation of Private Debt Investments – Calibration at Initial Measurement
- Definition of unit of account in debt valuation
- Definition of transaction price and discussion of when a transaction can be considered “at arm’s length”
- Introduction to calibration in debt valuation
- Practical example of how a calibration model is set up for a sample debt investment based on a synthetic credit analysis.
- Inputs in the calibration model at inception
- BDT modelling for prepayment features at inception
- Valuation of Private Debt Investments – Calibration at Subsequent Measurement
- Practical example of how a calibration model can be applied to subsequent measurement
- Review of inputs, conditions under which inputs need to be updated.
- Valuation of Convertible Bonds
- Optionality in convertible bonds
- Valuation of conversion features
- Valuation of Debt with Warrants
- Techniques for disaggregation of warrants
- Calibration with warrants and equity-like features
- Valuation of Non-Performing Distressed Debt
- Allocation effects of negotiation
- Probability-weighted scenario in distressed debt valuation
- Valuation of Debt for the Purpose of Valuing Equity
Other Considerations: Areas of focus in current research.
- List the provisions in the working draft of the AICPA Guide on the Valuation of Portfolio Investments of Venture Capital and Private Equity Funds and Other Investment Companies as they apply to private debt Investments
- Demonstrate how to set up a calibration model base and how to apply calibration in subsequent measurement periods
- Explain how to apply synthetic ratings and option pricing models to the valuation of private debt based on the examples that reflect AICPA guidance
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