Determining Fair Market Value and Assessing Liabilities in a Complex Market
A large Asian bank held the loan for a conglomerate’s holdings in a Canadian exploration and production company. As the debt neared the two-year mark, the bank needed a current fair market value of the E&P company and of certain disposition assets, along with abandonment liabilities. The findings would ultimately inform the bank’s decision on whether to renew the loan.
- Combination of technical and commercial analysis required to assess fair market value
- Required in-country expertise and a trusted valuation
- Half a billion-dollar investment decision
- 1-week rapid turnaround
- The foreign bank needed in-country expertise and a trusted valuation
- They had just one week to gather the information to support a renewal decision
- Sproule estimated the abandonment and reclamation obligation of the lendee and compared it to estimates provided by the Alberta Energy Regulator and the company
- The Sproule team prepared fair market values for the E&P company and for several disposition packages based on comparable market transactions, public trading multiples, and multiples of cash flow
- Abandonment liabilities were found to be higher than the company’s estimates, indicating a higher financial burden for the lender
- Sproule’s opinions on the lending base provided essential decision support for the bank in determining whether to renew a loan with the client
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