Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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A property investor purchased a retail property in London with a market value of £250.0 million. The property is multi-tenanted. The purchase is financed with a £170.0 million “5-year loan” with an annual debt service due of £9.0 million that includes a £3.4 million annual amortisation. The net average annual cash flow of the investor is £14.85 million.

You are a rating analyst and being asked to estimate the following:

a) Estimate the Debt Service Coverage Ratio (DSCR).
b) Based on your estimate of the DSCR and a diversity score of 5:

i) Estimate the Tenant’s Contribution (TC) to the DSCR.

ii) What is the Term default risk rating equivalent?

c) As a rating analyst, you haircut the market value of the property by 10.0%. Based on this haircut:

i) Estimate the Haircut property value and Haircut Loan-to-Value (LTV) ratio.
ii) Estimate the Refinancing Haircut LTV ratio.

Table 1 provides the mapping of different DSCRs to the Term default risk rating equivalent.

Refer to the image attached below for Table 1

Table 1
Diversity
score
DSCR
1.90 5
1.65 5
1.43 5
1.24 5
1.07 5
Weighted
Tenant Rating
Ba3
Ba3
Ba3
Ba3
Ba3
average Term default risk rating
equivalent
Baa2
Baa3
Ba2
Ba3
Ba3
expand button
Transcribed Image Text:Table 1 Diversity score DSCR 1.90 5 1.65 5 1.43 5 1.24 5 1.07 5 Weighted Tenant Rating Ba3 Ba3 Ba3 Ba3 Ba3 average Term default risk rating equivalent Baa2 Baa3 Ba2 Ba3 Ba3
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