medium · Private Credit & Debt loan-structures-instruments
Under ASC 820, a private debt fund holds a loan to a company that recently lost its primary customer, causing the yield of similar-risk assets in the market to increase.
How should the fund classify this asset's valuation, and what is the primary driver of the fair value change?
- Level 3; both credit-specific deterioration and market-wide yield shifts.
- Level 2; market-wide yield shifts as the asset is compared to broadly syndicated benchmarks.
- Level 1; since the loan principal is fixed and recovery is estimated by the board.
- Level 3; strictly limited to credit-specific deterioration to avoid 'smoothing' income.
Sign up free to see the explanation and track your rank →
More Private Credit & Debt loan-structures-instruments practice
- What is the blended interest rate paid by the borrower?
- What is the blended interest rate margin the borrower pays on the total facility?
- A private credit fund is evaluating a 'Unitranche' loan for… — What is the borrower's expe
- A fund manager is valuing a senior loan to a private mid-mar… — Under ASC 820, how is this
- Which group is the fulcrum?
- What is the indicative margin for the 'last-out' lender?
- What is the primary risk factor the lender evaluates?
- If the company fails and liquidates for $2M after two years, what was the primary risk rea