Lesson 25 of 25 · 7 min

Reading a schedule you were given as the policy document it is

The page in your file carries a date, and the date is the most informative thing printed on it.

At origination you were handed an advance-rate schedule. It looks like a specification of what your portfolio supports. It is a statement of what one institution was willing to do on one date, and every feature of the document says so.

Four things the page itself tells you, before any percentage is read:

It has a version and an effective date, which means there were earlier versions and there will be later ones.
Rows stated as ranges rather than single figures mark where the lookup ends and a judgement begins.
Concentration caps either appear on the same page or are cross-referenced elsewhere, and where they are cross-referenced the schedule alone cannot produce a capacity figure.
A line reserving the right to amend, usually near the foot, is the document describing its own status.

What the schedule describes, then, is risk appetite at a moment. It is the institution's current answer to the recovery question from lesson 1, applied uniformly and revised when the answer changes. It is not a term of the loan, it was not negotiated, and the version in your file stops being the operative one the moment a new version takes effect.

The measurement below makes the point in the only way that lands. One portfolio, unchanged for thirteen months — no trades, no contributions, and for the purposes of the exercise no price movement either — valued against the schedule dated at origination and then against the current one. Seventy-eight thousand dollars of capacity moved. The holdings did not.

Key terms

Risk appetite: How much of a given exposure an institution currently wants to hold. What a schedule expresses, in percentages, on a particular date.
Operative version: The edition of the schedule currently in force. The copy in a borrower's file is a historical record from the moment a new one is published.
Capacity: Total lending value, and therefore the maximum drawable amount. A function of the schedule as much as of the portfolio.

Worked example

The same portfolio under two schedules, thirteen months apart

Holdings unchanged and prices held constant to isolate the schedule: $312,000 of a short government bond fund, $694,000 of a broad-market index fund, $458,000 of one large listed company, $176,000 of one mid-sized listed company. Total market value $1,640,000.

Lending value under the schedule dated at origination: $1,120,600
Lending value under the current version: $1,042,160
Blended advance rate, then and now: 68.3% and 63.5%
Capacity that moved: $78,440
Unused capacity against a $690,000 balance: $430,600 to $352,160
Trades required to produce this: None

Two rows of a table moved and $78,440 of borrowing capacity went with them. The portfolio that supported it was identical on both dates, down to the share count.

Check yourself

The schedule in your file is dated fourteen months ago and prices a class at 55 percent. The current version prices the same class at 41 percent. You hold $624,000 of it and have not traded. What changed, and what was the document you were given?

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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.