Valuation

Market-Implied Pricing

At AD&Co, we have developed a valuation model for whole loans that mirrors relative value in the securities market. We break down each loan into three risk components — senior, mezzanine, and subordinate — with the sizing of these risk components reflecting its credit quality. We then derive credit option-adjusted spreads (crOAS) from securities recently issued in the market. These benchmark crOAS are then used to price the loan’s risk components. The resulting prices are adjusted for transaction costs and are net of servicing.

Valuation of Complex MBS

Using our sophisticated valuation methods, we help clients identify risks in their portfolio, determine the value of specific holdings or entire portfolios, estimate principal losses and impairment for accounting purposes, and optimize risk and return of credit-sensitive assets. We work with clients to minimize losses of distressed assets in their portfolio and maximize value for BBB-bondholders in bankruptcy proceedings and for sellers in M&A transactions.

Our advanced practices for valuing credit-sensitive MBS include Default Adjusted Spread (DAS) and Expected Value (EV). We utilize proprietary analytic tools for forecasting risk measures such as price, yield, prepayments, option-adjusted spread, duration and convexity and are considerably skilled in analyzing historical performance data to forecast prepayments, defaults, delinquencies and loss severities. Analyzing deal structures and reverse-engineering deals in order to forecast cash flows are additional capabilities.

Our consultants have the analytic expertise to value complex MBS for which actively traded markets do not exist or where pricing information is not readily available.