Lesson 14 of 25 · 6 min

Finding the maintenance threshold

The call line is a percentage of a named basis, and this page happens to print both halves.

The maintenance threshold is the percentage at which the loan is no longer treated as adequately covered. It is a survival number, not an origination number — Track 1 lesson 5. Finding it on a statement is a two-part read: the percentage, and the basis it is written against. This Halden & Wren page prints both, at the foot of the positions block: 70% of market value.

Many statements print only “maintenance 70%” or print nothing. Without the basis the percentage is unusable, because 70% of market value and 70% of lending value are different tests. On this book, 70% of $6,032,795.00 is $4,222,956.50 of permitted loan, which the $1,858,563.47 close does not approach. Seventy percent of $3,277,251.25 is $2,294,075.88 of permitted loan, and the same close is then much nearer. The words “of market value” decide which of those two tests this facility runs.

The threshold is also not the advance rate and not the blended 54.32%. Advance rates decide how much may be counted. The threshold decides how large the loan may be relative to the named basis. Printing them in the same block invites a collapse. They are different clauses. This page happens to name the threshold's basis. The agreement is still the document that authorised 70% and named market value; the statement is echoing an applied term.

A threshold without a basis is a number you cannot test. This fixture includes the basis; that inclusion is part of what makes the page teachable, not a feature of every statement.

Key terms

Maintenance threshold: The maximum loan, as a percentage of a named basis, the facility treats as covered. Here, 70% of market value.
Basis (of the threshold): Whether the percentage is applied to market value or to lending value. This page names market value.
Applied threshold: The threshold as printed for the period. It echoes the agreement; it is not itself the clause.

Worked example

Seventy percent, two bases, two tests

Closing drawn balance $1,858,563.47 against the 31 March totals.

Printed threshold: 70% of market value
Permitted loan on that basis: $6,032,795.00 × 0.70 = $4,222,956.50
Closing drawn balance: $1,858,563.47
Same 70%, if the basis were lending value: $3,277,251.25 × 0.70 = $2,294,075.88
Room to that invented test: $2,294,075.88 − $1,858,563.47 = $435,512.41
Room to the printed test: $4,222,956.50 − $1,858,563.47 = $2,364,393.03

The percentage alone does not name a test. The words “of market value” are doing as much work as the 70.

Check yourself

The page prints “70% of market value”. Closing drawn balance is $1,858,563.47 and market value is $6,032,795.00. What permitted loan does that threshold describe, and what changes if a reader drops the words “of market value” and applies 70% to lending value instead?

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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.