Valuation and exiting processes
Methodology for the valuation
Methodology for the valuation of claims (loans)
A calculation of the expected value of specific claims serves as the basis for determining their value. Two possible scenarios (either restructuring or recovery of assets) for each company are taken into account in the assessment and expected cash flows for BAMC are estimated. Probabilities that those cash flows would be generated are estimated for each scenario with support of the default probability scorecard, which considers various business risk elements. An individual company's estimated cash flows and its debt servicing capacity are taken into account in the restructuring scenario, while the liquidation values of cashed in collateral are considered for the recovery scenario. For each scenario the present value of the cash flows is calculated by taking into account the internal discount rate, which represents BAMC's weighted average cost of capital. In case the probability of the restructuring scenario is estimated at lower than 50%, then, to be conservative, only the recovery cash flows are considered. In case the probability of the restructuring scenario is estimated as higher than 50%, the value of the claim is determined based on the binomial real option pricing model, which considers the probability weighted present value of both scenarios. This effectively decreases the value of the restructuring scenario based on the probability of default and the value of the security as a back-up option in case of a restructuring failure.
Methodology used to value real estate
A simplified valuation method is used for residential real estate and individual non-residential real estate with an externally appraised value of less than €2 million. This method is based on the methodology used by the Surveying and Mapping Authority of the Republic of Slovenia (Geodetska uprava Republike Slovenije). Obtained values are adjusted using various correction factors such as the condition of the real estate in question, its location, size, vacancy rate, etc. For more complex real estate, the discounted cash flow method is used, based on cash flow forecasts.
Methodology used to value equity holdings
Equity investments where BAMC holds more than 20% of equity or the book value of the equity exceeds €5 million are valued by discounting free cash flows. Other equity investments are valued using a comparative method based on EV/EBITDA multiples. The share price is used for minor investments for which a market value is available, provided that the shares in question are sufficiently liquid.
Competitive, professional and transparent exiting processes
BAMC has developed clear policies for how to ensure that its exit processes are competitive, professional and transparent. The guiding key principles are to ensure that the optimal price is being achieved from an eligible acquirer. BAMC will also strive to enhance Slovenia position as being an investor friendly environment by managing its exit processes professionally.
The credit management performs control of the exit process in order to comply with the restriction to avoid selling exposures back to the original debtors. BAMC's consideration of proposed exit terms will be on strict commercial grounds to avoid any potential illegal state aid provisions. BAMC is state-owned and as such any non-commercial consideration without prior consent of the relevant competition authority would likely be considered as illegal state aid.