Debt and option valuations
At Lotus Amity we provide debt and option valuations. We provide debt and option valuations in shareholder disputes, for tax purposes and to allow the valuation of the balancing ordinary shares.
Debt valuations
Our debt valuations include an assessment of the loan note terms, guarantors, other loans and financial covenants.
Debt is typically valued through modelling cash flows and discount rates. Debt valuation issues include:
- Assessing the likely risk of the borrower defaulting on repayments
- In a default situation, assessing the likely amount to be recovered
- The yield spread for similar securities
Option valuations
The value of option depends on the probability that the share price will be greater than the strike price. The factors that influence the probability that the share price will be greater than the strike price are the volatility of the share price and the exercise price
Our option valuations include an assessment of:
- The unlisted company share price
- The documented vesting conditions
- Volatility of expected company returns and historical comparable publicly listed company returns
- Expiration and dividend yields
Our valuations include the use of an option pricing model, such as the Black-Scholes model. Valuations are provided for financial reporting purpose under AASB 2.
Case studies
The following case studies illustrate our debt and option valuation experience:
- Valuation of the loan notes held in a renewable electricity supplier. Lotus Amity analysed the issuers operations, loan note terms, guarantors, debt service and repayment risk, security, subscription and pricing, financial covenants, quarterly performance, budget and forecast, cash and assets values, risk-free rates and market yield spreads.
- Valuation calculation of a parties’ vendor finance and associated income stream arising from a contract of sale of shares in a related company. Lotus Amity prepared a single expert report calculating the net present value of the income stream in accordance with the valuation approach agreed by the parties. The report assessed the share sale agreement, vendor finance deed, security agreement, the current and future streams of income, the expected cessation, and modelled a discount rate considering the default risk and the recoverability of the debt.
- Valuation of the fair value of employee Zero Exercise Price Options together with the expected number to vest for financial reporting purposes. Lotus Amity analysed the agreements and long-term incentive plan rules, treatment of options for leavers, vesting dates and conditions, the intrinsic option values, volatility and expiration, risk-free rate, dividend distribution, exercise dates and dividend yield.