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.
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Project Highlights
- 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
Challenges:
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
They had just one week to gather the information to support a renewal decision
Solutions:
Sproule ERCE 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 ERCE 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
The Sproule ERCE 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
Values:
Sproule ERCE’s opinions on the lending base provided essential decision support for the bank in determining whether to renew a loan with the client