Lesson 13 of 25 · 6 min
What happens to blended when Calder falls and the fund does not
A falling low-advance name improves the average and shrinks the collateral at the same time.
Hold four rows still and cut Calder by 37 percent. Calder's market value goes from $1,840,005 to 1,840,005 × 0.63 = $1,159,203.15. The pool's market value goes from $6,032,795 to $5,351,993.15. Calder's lending value goes from $644,001.75 to 1,159,203.15 × 0.35 = $405,721.10. The pool's lending value goes from $3,277,251.25 to $3,038,970.60.
The blend rises. 3,038,970.60 ÷ 5,351,993.15 = 0.567820, which is 56.78 percent, against 54.32 percent before the fall. Two and a half points of 'improvement', produced by damaging the name that was pulling the average down. The government fund did not move. It is now 951,390 ÷ 5,351,993.15 = 17.78 percent of market value and 808,681.50 ÷ 3,038,970.60 = 26.61 percent of lending value.
Lending value fell by 3,277,251.25 − 3,038,970.60 = $238,280.65, which is exactly the Calder market-value loss times Calder's advance rate: 680,801.85 × 0.35 = $238,280.65. Stated capacity is still $2,400,000, because $3,038,970.60 remains above the limit. The blend rose, the collateral shrank, and the line did not move. All three facts are true at once.
This is the offset from lesson 4, running in time rather than across rows. Remove weight from the low-advance name and the average must rise. The average is not a measure of safety. It is a measure of mix. A book can become more government-fund-shaped by losing Calder, which is not the same event as adding a government fund.
When the cheapest collateral falls, the blend applauds. The sum does not.
Key terms
- Idiosyncratic fall
- A decline confined to one row while the others are held still. Here, 37 percent on Calder only.
- Blend improvement
- A rise in the weighted average caused by shrinking a below-average row, not by raising any rate.
- Unchanged capacity
- Stated capacity holding still because the facility limit remains the binding ceiling after the fall.
Worked example
Calder down 37 percent, four rows still
March book. Calder market value × 0.63. Other rows unchanged. Advance rates unchanged.
- New Calder market value
- $1,159,203.15
- New pool market value
- $5,351,993.15
- New pool lending value
- $3,038,970.60
- New blended advance rate
- 56.78%
- Change in the blend
- +2.46 points
- Stated capacity
- $2,400,000
$1,840,005 × 0.63.
$6,032,795 − $680,801.85.
$3,277,251.25 − $680,801.85 × 0.35.
3,038,970.60 ÷ 5,351,993.15.
56.78 − 54.32.
Still the minimum against $3,038,970.60.
The average improved because the low row shrank. The collateral did the opposite, and the line ignored both.
Check yourself
Calder falls 37 percent and the other four March rows do not move. What happens to the blended advance rate, to lending value, and to stated capacity against the $2,400,000 limit?
Saved in this browser only. No account, nothing sent anywhere.
Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.