Debt Valuations

FMS incorporates sophisticated interest-rate modeling with real time market data to provide accurate, ASC 820/FAS 157-compliant debt valuations. FMS makes debt valuation a quick, automated process. Users can run valuations for any day as often as needed throughout the year.

Debt fair values are nothing new to financial reporting. In the U.S., they have been required for many years as a FAS 107 footnote disclosure.More recently, with the introduction of ASC 820/FAS 157, fair values have received increased attention and have required preparers of financial reports to look more closely at their fair value methodologies and assumptions.

There are three main components influencing the fair value of debt:

• Loan economics
• Interest-rate markets
• Replacement credit spreads

Loan Economics
FMS accurately models the contractual cash flows of your debt

• Precise debt models capture the specifics of your loan agreements to accurately generate amortization schedules
• Current market data is used to reflect actual interest-rate resets for variable rate debt
• A team of Chatham professionals load and reconcile your debt portfolio. A copy of your loan agreement with highlighted sections and bookmarks to the key loan economics is filed in the system for your reference

Interest Rate Markets
Interest-rate markets are constantly changing. The fair value of debt is a measure of where the market would price the same debt, today, given current levels of interest rates and credit spreads.

• Chatham has been active in interest-rate markets since 1991 and has developed expertise in financial modeling, valuations, and accounting
• These financial models are integrated with current market data to derive the future implied variable rates and discount factors needed for accurate debt valuations

Replacement Credit Spreads
The performance of collateral associated with a debt instrument drives the level of credit a lender will charge.These charges are typically captured as a spread over the benchmark curve from which the debt originally priced.

You use your understanding of how a property is performing and what your lenders are currently charging for a related level of credit to determine an appropriate credit spread. FMS provides a framework in which your credit spread can be incorporated into debt valuations.

• FMS enables you to control the credit assumptions applied in the fair value calculations
• FMS maintains the history of historical credit spread assumptions for easy audit tracking and verification
• Most recent credit assumptions are applied to current market interest-rates each night for nightly valuation updates

FMS streamlines the debt fair value process and provides automated debt valuations at the individual debt level on a nightly basis