Lesson 22 of 25 · 7 min
A gap in statements: what you lose
A missing month erases the rate path, the reset date, and the only check that the chain still holds.
A gap is a missing period between two held statements. What you lose is not a decorative page. You lose the only independent check on the later opening, the rate path inside the missing window, any reset that occurred there, and every intra-period mark the missing page would have frozen. The later statement still prints an opening. It cannot prove that opening.
Suppose February is the missing month and March is in hand. March opens at $1,847,220.00. Without February you cannot test that figure against $1,837,260.01 + $9,959.99. You also cannot see that February ran 28 days, or recover the rate that produced $9,959.99. An invented Act/360 reconstruction on $1,837,260.01 over 28 days at 6.97% is $1,837,260.01 × 0.0697 × 28 ÷ 360 = $9,959.84, fifteen cents from the fixture's $9,959.99 — a check that exists only when February's page, or at least February's opening and day count, is present.
You also lose 12 March's neighbour. If a reset had fallen in February rather than March, March's rate schedule would open already at 7.22% and would not mention 6.97% at all. The thinner reading from lesson 10 — one closing rate, one interest total — would then cover two months of movement with one printed number. The missing page is where that movement was itemised.
Collateral is restated, not chained, so a gap loses a mark rather than a telescoping dollar. There is no February Meridian price on this fixture to recover from March's $148.25. A mid-February low that breached a threshold and recovered by 31 March would have been a lender-visible event on a page you do not have, and a non-event on the page you do.
Key terms
- Gap
- A period for which no statement is in hand, sitting between two periods that are. The later opening then has no join to test.
- Unverified opening
- A later opening that cannot be matched to a prior close. March's $1,847,220.00 becomes a claim rather than a carried figure.
- Lost rate path
- The sequence of fixings, spreads and reset dates inside the missing window. A later schedule does not reprint them.
Worked example
March in hand, February gone
The March statement only. February's $1,837,260.01, $9,959.99 and 28 days are not on the desk.
- What March still prints as its opening
- $1,847,220.00
- Join test you can no longer run
- $1,837,260.01 + $9,959.99 = $1,847,220.00
- February day count you can no longer see
- 28 days
- Invented 6.97% rebuild of February, if you guessed the inputs
- $1,837,260.01 × 0.0697 × 28 ÷ 360 = $9,959.84
- Gap between that guess and the fixture interest
- $0.15
- What March says about a February reset
- Nothing
The later page remains internally consistent. Internal consistency is not a chain. The chain lived on the page that is missing.
Check yourself
You hold the March statement and not the February one. March opens at $1,847,220.00. Which three facts about the loan can you no longer verify, and which March identities still hold?
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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.