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To pay less than the origination price of the loan

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to pay less than the origination price of the loan. Finally, MWM considered that theydid not have evidence that the pricing service data was contemporaneous andactionable, nor did they have the ability to obtain more information. Even though twoout of the three bidswere close to MWM’s fair value estimate, MWM did not haveenough information to know whether those bids were reliable. Therefore, theydeemed the value derived from the model to be more representative of fair value.Fair Value Measurement at June 30, 2X15C.13.127The company was performing extremely well. Max Marine Technologies won amajor contract and renewed several others with the U.S. Navy. Furthermore, thecompany also won a new contract with the U.S. Coast Guard. As the U.S. Navy wasexpected to pivot towards the Pacific, the company’s earlier decision to expand itsshipyard and repair facilities on the West Coast was proven fortuitous.C.13.128MWM considered whether the company’s credit rating had improved relative to the“B+/B1 (S&P/Moody’s)”rating as of the origination date. The company had notobtained a recent rating for its senior debt; therefore, MWM considered a syntheticcredit rating analysis. Using the latest financial information as of the measurementdate, MWM determined that the company’s ratingshad increased by one notch,indicating an improvement for the mezzanine debtto “BB–/Ba3 (S&P/Moody’s).”C.13.129Using the debt and option model used at previous measurement dates, consideringthe improvement in yields and the increase in the public stock price, MWMconcluded on a range of fair value for the debt and the common stock warrants as ofthe measurement date of $15,064,395 (100.43 percent of par) to $15,305,438(102.04 percent of par).C.13.130MWM also considered the prices provided by the consensus pricing service.Theconsensus pricing service provided two indicative bids of 96 and 99, indicating a fairvalue of $14,400,000 to $14,850,000. MWM had obtained additional information on
259some of the bids reported by the pricing service and concluded that they werecontemporaneous and included the value of associated warrants. However, MWMnoted that these bids made no sense relative to the original transaction price and theindicative bids at the last measurement date, since the company’s stock price hadincreased and the company’s credit quality had improved.C.13.131Understanding their responsibility to consider the potentially contradictoryinformation from the pricing service when assessing fair value, MWM furtherconfirmed by discussion with their deal team and brokerages who wereknowledgeable about the specifics of this investment and the overall market, thatbased on their experience in buying and selling similar debt instruments, actualtransactions would likely take place in the range of 101 to 105. MWM was alsoobserved recent market transactions of somewhat similar credits on both originatedand sold loans that would place the range of value from 100 to 102.25. MWMtherefore concluded that their point estimate of $15,184,176 (101.23 percent of parthe midpoint of the range discussed in paragraph C.13.130) was the best estimate offair value.

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Term
Fall
Professor
JOHNPUTHENPURACKAL

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