Lesson 3 of 25 · 6 min

Apply a 37 percent decline to Calder only

One name can fall by more than a third and the market-value test still has two and a half million dollars of room.

Calder Growth is 3,100 shares at $593.55, worth $1,840,005, the concentrated row on the March statement. A 37 percent decline on Calder alone leaves the other four rows untouched and multiplies Calder by 0.63.

Calder's new market value is $1,840,005 × 0.63 = $1,159,203.15. Its new price is $593.55 × 0.63 = $373.9365. Lending value on the row is $644,001.75 × 0.63 = $405,721.10. The rest of the book is still $4,192,790 of market value and $2,633,249.50 of lending value.

The stressed totals are therefore $4,192,790 + $1,159,203.15 = $5,351,993.15 of market value and $2,633,249.50 + $405,721.10 = $3,038,970.60 of lending value. Market LTV is $1,858,563.47 ÷ $5,351,993.15 = 34.73 percent. Headroom is $5,351,993.15 − $2,655,090.67 = $2,696,902.48, or 50.39 percent of the stressed book. The shortfall is $0.

Compare that with the 19 percent uniform move. A shallower percentage applied to every row took market value to $4,886,563.95. A deeper percentage applied to one row left it at $5,351,993.15. The concentrated shock looks more violent on the name and is the milder of the two on the facility, because four-fifths of the collateral never moved. Calder at the March close was 30.50 percent of the book; after this fall it is $1,159,203.15 ÷ $5,351,993.15 = 21.66 percent. The facility read the sum both times.

Key terms

Single-name stress: A price change applied to one pledged holding while every other row is held at its statement price.
Calder Growth: The concentrated common-share row on the March statement: 3,100 shares at $593.55, worth $1,840,005, advancing at 35 percent.
Untouched rows: The holdings whose prices are not replaced in the stress. Their market value and lending value carry forward unchanged.

Worked example

Thirty-seven percent off Calder, four rows still

Calder multiplied by 0.63. Meridian, the collective, Oakridge and the government fund left at March prices.

Calder market value: $1,159,203.15
Calder lending value: $405,721.10
Stressed market value: $5,351,993.15
Stressed lending value: $3,038,970.60
Market LTV: 34.73%
Headroom: $2,696,902.48

A 37 percent hole in the largest single name left more than two and a half million dollars between the book and the trigger.

Check yourself

Calder falls 37 percent and the other four March rows do not move. What is the new market value of the book, and does the 70 percent market-value test fail?

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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.