medium · Asset-Backed Securities asset-nuances
A middle-market lease pool includes a concentration of construction equipment.
How would an analyst forecast the 'residual value' for this equipment during a stressed scenario?
- By applying haircuts to the booked values based on the historical volatility of secondary market auction prices for similar models.
- By taking the manufacturer's suggested retail price and depreciating it on a straight-line 10% annual basis over the lease term.
- By determining residual realization solely from the lessee's own credit rating rather than the equipment's market value.
- By assuming the equipment can always be liquidated for at least its underlying scrap metal value at lease-end.
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