Lesson 23 of 25 · 5 min

The same 30 percent decline, concentrated versus spread

Thirty percent off the whole book costs $1,809,838.50; thirty percent off Calder costs $552,001.50; matching the book figure from Calder alone requires a 98 percent fall.

Thirty percent can describe two different restatements. Spread: every row multiplied by 0.70. Concentrated: Calder multiplied by 0.70 and the other four rows left at March prices. The headline is the same word. The sums are not.

Spread takes market value to $6,032,795 × 0.70 = $4,222,956.50 and lending value to $3,277,251.25 × 0.70 = $2,294,075.88. The dollar hole is $1,809,838.50. Market LTV is $1,858,563.47 ÷ $4,222,956.50 = 44.01 percent. Headroom is $4,222,956.50 − $2,655,090.67 = $1,567,865.83, or 37.13 percent of the stressed book.

Concentrated takes Calder to $1,840,005 × 0.70 = $1,288,003.50 and the book to $5,480,793.50. The dollar hole is $552,001.50. Market LTV is 33.91 percent. Headroom is $2,825,702.83, or 51.56 percent. The same 30 percent, applied to one name rather than to five, leaves $1,257,837 more market value on the page.

To carve the spread hole of $1,809,838.50 out of Calder alone, Calder would have to fall $1,809,838.50 ÷ $1,840,005 = 98.36 percent, leaving $30,166.50, a last price of $9.73. A 30 percent book event and a 30 percent name event are not two readings of one shock. Matching them requires nearly wiping the concentrated row out, because that row is only 30.50 percent of the March sum.

Key terms

Spread decline: The same percentage applied to every pledged row. A 30 percent spread decline on this book removes $1,809,838.50.
Concentrated decline: The same percentage applied to one row. A 30 percent Calder decline removes $552,001.50.
Equivalent single-name fall: The percentage one row would have to fall to match a spread hole in dollars. For Calder matching a 30 percent book move, 98.36 percent.

Worked example

One headline, two books, one equivalence

Thirty percent, applied two ways, then inverted to find the Calder-only move that matches the spread hole.

Spread market value: $4,222,956.50
Spread headroom: 37.13%
Calder-only market value: $5,480,793.50
Calder-only headroom: 51.56%
Calder fall that matches the spread hole: 98.36%
Gap between the two 30 percent books: $1,257,837

The word thirty percent does not name a facility event until it names the rows it is applied to. Matching the book event from one name nearly deletes the name.

Check yourself

A 30 percent decline on every March row takes $1,809,838.50 off the book. How far must Calder alone fall to remove the same number of dollars, and what last price is that?

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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.