Portfolio Valuation SolutionsThe advent of FASB 156 and 157 has placed a greater burden on market participants to properly value their SBA loans, IOs, and pool securities. Previously, internal and external auditors allowed more subjective methods of valuation. Due to these initiatives, auditors have been increasingly requiring that market participants have an independent third party perform the valuation of their portfolio assets and defend the methodology in which these values were derived.
FASB 157 emphasizes that fair value is a market based measurement not an entity specific measurement, so real time market observations are required. Sarbanes-Oxley (SOX) compliance requires process standardization valuation controls, real time responsiveness and disclosure of material valuation changes. Automated, independent, third-party valuation facilitates FASB and SOX compliance while reducing corporate liability. Accounting firms have recently advocated that market participants begin obtaining third party valuation of their portfolio assets to support the fair value measurements, particularly when limited market participant data is available. GLS offers a solution to this situation called e-MTM®.
A Needs Based Solution
- Market price cannot be easily determined due to lack of transparency in an illiquid market.
- Sarbanes-Oxley (SOX) compliance requires process standardization valuation controls.
- Prior to GLS, managers were forced to value their own portfolios due to lack of third-party
- Automated, independent, third-party valuation facilitates SOX compliance & reduces
- The three principals of GLS have a combined 70 years of trading & research experience,
40 of which are in the SBA industry.
- GLS has access to up-to-date pricing and prepayment data, allowing for accurate
valuation based on current market conditions and real market observations.
- Realizing the need for reliable & objective third-party pricing services, we invested years
developing valuation models that have been time-tested and successfully defended
during our tenure in the industry.
Cash Flow Modeling and Discounting
- Properly estimating monthly cash flows for each SBA instrument is vital to proper
valuation of SBA pools, loans, and IOs.
- Using our proprietary models and up-to-date prepayment data, GLS builds monthly
prepayment vectors broken down into six different maturity categories.
- The resulting CPR curve provides the most accurate cash flow estimation available within
- GLS tracks current market conditions, as well as other market variables, in order to
derive risk spread curves used in calculating discount rates.
- Each calculated monthly cash flow for each asset being valued is then discounted using
these proprietary interest rate curves.