Lesson 21 of 25 · 6 min

The schedule the agreement describes versus the schedule applied

The published row is a ceiling. The applied row is what survived every other rule.

Agreements describe a schedule in categories: large-company common at an illustrative 60 percent, growth common at 50, diversified equity at 70, preferred at 55, short government at 85. The March statement applies 50, 35, 70, 55 and 85. Three rows match the description. Two do not. The gaps are not misprints. They are the other rules — concentration, eligibility, discretion — landing on the published ceiling.

Meridian's published 60 percent would produce 1,838,300 × 0.60 = $1,102,980. The applied 50 percent produces $919,150. The gap is $183,830, which is ten points on Meridian's market value: 1,838,300 × 0.10 = $183,830. Calder's published 50 percent would produce 1,840,005 × 0.50 = $920,002.50. The applied 35 percent produces $644,001.75. The gap is $276,000.75, which is the same fifteen points lesson 9 isolated.

Add those two gaps and the applied book is $459,830.75 below the described book. Described lending value would be 3,277,251.25 + 459,830.75 = $3,737,082. The described blend would be 3,737,082 ÷ 6,032,795 = 0.61946, which is 61.95 percent, against the applied 54.32 percent. Seven and a half points of blend, sitting entirely in two single-name overlays.

Reading the agreement's table as the operative table is how a borrower rebuilds $3,737,082 and then cannot find it on the statement. The statement is the applied schedule. The agreement is the ceiling from which the applied schedule was cut. Both documents are true. They are true about different objects.

A published rate is what the category can carry. An applied rate is what this holding, in this mix, was allowed to keep.

Key terms

Described schedule: The category table in the agreement, before concentration, eligibility or discretion overlays.
Applied schedule: The rates actually multiplied through this month. On this statement: 50, 35, 70, 55 and 85 percent.
Overlay gap: Described lending value minus applied lending value. $459,830.75 on the two single-name rows.

Worked example

Two tables, one book

Illustrative described rates: Meridian 60 percent, Calder 50 percent, other three rows as applied.

Meridian, described versus applied: $1,102,980 versus $919,150
Calder, described versus applied: $920,002.50 versus $644,001.75
Overlay gap on the pair: $459,830.75
Described pool lending value: $3,737,082
Described blend: 61.95%
Applied blend: 54.32%

Seven and a half points of blend live in the overlays. The agreement's table does not contain them.

Check yourself

The agreement describes Meridian at 60 percent and Calder at 50 percent. The statement applies 50 and 35. What is the overlay gap on the pair, and what blend would the described table have produced on the March market values?

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.