Lesson 14 of 25 · 6 min
Reclassification of one row
Zeroing Calder removes six hundred and forty-four thousand of lending value and does not touch the stated line.
A reclassification changes the category a holding is looked up under. The shares do not move. The price does not move. The third term of the product moves, because the table is being read on a different row. The sharp case on this book is Calder reclassified to ineligible, which is an advance rate of zero.
Calder's lending value falls by the whole of itself: $644,001.75. The pool's lending value falls from $3,277,251.25 to $2,633,249.50. Market value is unchanged at $6,032,795, because the shares are still pledged. The blend falls from 54.32 percent to 2,633,249.50 ÷ 6,032,795 = 0.43649, which is 43.65 percent. A 10.67 point drop in the average, from a category change on one name.
Stated capacity does not move. The facility limit is still $2,400,000, and $2,633,249.50 is still larger, so the minimum is still $2,400,000. Undrawn is still $552,780 against the opening balance of $1,847,220. The surplus above the limit shrinks from $877,251.25 to 2,633,249.50 − 2,400,000 = $233,249.50. That is the whole of the event as the line experiences it: a thinner cushion in front of an unchanged ceiling.
This is the lesson the inequality in lesson 12 was waiting for. A reclassification can be violent on lending value and silent on stated capacity, right up until the sum crosses $2,400,000 from above. The printed line does not advertise the crossing in advance. The surplus is the only warning the arithmetic gives.
An unchanged stated capacity is compatible with a large hole in the collateral. On this book the hole is Calder, and the line has not noticed.
Key terms
- Reclassification
- A change of category for an existing holding, which changes the advance rate without a trade.
- Ineligible
- A category whose advance rate is zero. The holding remains pledged and remains in the market-value total.
- Surplus above the limit
- Lending value minus the facility limit, while that difference is positive. The figure this event actually spends.
Worked example
Calder moved to the zero row
March book. Calder's advance rate reset from 35 percent to 0 percent. Market values unchanged. Limit $2,400,000.
- Lending value removed
- $644,001.75
- New pool lending value
- $2,633,249.50
- New blended advance rate
- 43.65%
- Stated capacity
- $2,400,000
- Surplus remaining above the limit
- $233,249.50
The whole Calder product.
$3,277,251.25 − $644,001.75.
$2,633,249.50 ÷ $6,032,795.
min($2,633,249.50, $2,400,000).
Was $877,251.25.
Six hundred and forty-four thousand left the collateral. The stated line did not blink, because the limit was still the smaller number.
Check yourself
Calder is reclassified from 35 percent to 0 percent on the March book. What happens to lending value, to the blend, 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.