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The Effects of Going Concern Appraisals on Lending

OnDemand Webinar (86 minutes)

Learn why an appraisal/valuation is required for the going concern for lending purposes and identify the effect of going concern appraisals on lending.2020 started off as a promising year with stock markets performing well and economy expected to be stable. However, within a span of just a few weeks, the COVID-19 pandemic swept the investment world off its feet and resulted in unprecedented market volatility and uncertainty. It is a challenging time for companies with mid to high level of debt on their balance sheets. For example, given the high leveraged nature of private equity backed businesses, a downward business valuation would potentially be catastrophic for some of the businesses. In the last couple of months, the pandemic has hammered some private equity owned companies ill-equipped to handle an economic downturn because of heavy debt obligations. Travel and retails businesses have been especially vulnerable, such as J. Crew, Niemen Marcus, and Hertz, which filed for bankruptcy protection last month. Private equity business were hit hard in May, when 16 companies backed by private equity filed for bankruptcy. The higher debt obligation significantly reduces the equity valuations during economic downturn and must be monitored closely. Given the significant changes in going concern valuations, terms of new lending or existing loans would potentially be renegotiated.

Authors

Ajay Mishra, Citrin Cooperman & Company, LLP

Agenda

What Is a Going Concern?

Why an Appraisal/Valuation Is Required for the Going Concern for Lending Purposes?

What Is a Coverage Analysis?

How to Value a Business/Concern?

Standard of Value

Discussion of Key Valuation Methodologies

Brief Discussion on Types of Risks

How to Value a Loan?

Loan Valuation Methodologies

Effect of Going Concern Appraisals on Lending