Fair Value
Private Credit glossary · Loan Structures & Instruments
Definition
Price that would be received to sell an asset (or paid to transfer a liability) in an orderly transaction between market participants at the measurement date, per ASC 820. The critical qualifier 'orderly transaction' explicitly excludes fire-sale pricing. For middle-market direct loans (Level 3 under ASC 820), fair value is estimated by discounting contractual cash flows at a market yield that reflects current spreads, borrower credit, and any markdown for impairment.
Fair Value in plain English
Fair value is the honest, realistic price you'd get for something in a normal, unrushed sale between a willing buyer and seller — not a panic "sell it now at any price" fire-sale number. The accounting rulebook (ASC 820) insists on that "orderly" wording precisely to rule out desperation pricing. For loans that don't trade on any public market, there's no ticker to look up, so the value is estimated by taking the loan's future payments and figuring out what an investor would pay for them today, given current interest rates and how risky that particular borrower looks. If the borrower's health has slipped, that estimate gets marked down to reflect the added risk.
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