Use of Discount Rates in the Partnerships Victoria Process

Technical Note - July 2003
Use of Discount Rates in the
Partnerships Victoria Process
3DUWQHUVKLSV9LFWRULD
'LVFRXQW5DWHV
6XPPDU\ 'LVFRXQWUDWHFRQFHSWV &RQVLVWHQF\EHWZHHQGLVFRXQWUDWHVDQGFDVKIORZV 'HWHUPLQLQJGLVFRXQWUDWHVIRU36&FRQVWUXFWLRQDQGELGHYDOXDWLRQ ,QWURGXFWLRQ 6WDWXVRIWKLVWHFKQLFDOQRWH 6WUXFWXUHRIWKLVWHFKQLFDOQRWH 'LVFRXQWUDWHVDQG3DUWQHUVKLSV9LFWRULDSURMHFWV 3XEOLF6HFWRU&RPSDUDWRU36& %LGHYDOXDWLRQ (VWLPDWLQJGLVFRXQWUDWHV &RVWRIFDSLWDO±SULQFLSOHV 7\SHVRIULVN 7LPHSUHIHUHQFHDQGWKHULVNIUHHUDWH 0DUNHWULVNSUHPLXP 6\VWHPDWLFULVNRIDSURMHFW &DSLWDODVVHWSULFLQJPRGHO&$30 'LVFRXQWUDWHIRUJRYHUQPHQWSURMHFWV 5LVNIUHHUDWH 0DUNHWULVNSUHPLXP 3URMHFWULVNSUHPLXP &RQVLVWHQF\EHWZHHQGLVFRXQWUDWHVDQGFDVKIORZV 5HFRQFLOLDWLRQZLWKKLVWRULFDODSSURDFK 'LVFRXQWUDWHIRUWKH36&DQGELGV *HQHUDODSSURDFK±WRDSSO\LQPRVWSURMHFWV $SSURDFKWRDSSO\ZKHUHPDWHULDOV\VWHPDWLFULVNLVWUDQVIHUUHG 6XPPDU\RIGLVFRXQWUDWHVIRUWKH36&DQGELGV $GGLWLRQDOXVHVIRUGLVFRXQWUDWHV ,QYHVWPHQWGHFLVLRQ )UHTXHQWO\DVNHGTXHVWLRQV 'RHVJRYHUQPHQWKDYHDORZFRVWRIFDSLWDO" 6KRXOGJRYHUQPHQWXVHDVLQJOHGLVFRXQWUDWH" :K\GRHVWKHGLVFRXQWUDWHPHWKRGRORJ\FKDQJHIRUSURMHFWVZLWKQHWFDVK
RXWIORZV" 6KRXOGWKHULVNIUHHUDWHDOZD\VEHXVHGWRFDOFXODWHWKH36&IRUPDWHULDO
V\VWHPDWLFULVNWUDQVIHUSURMHFWVZLWKQHWFDVKRXWIORZV" $SSHQGLFHV
$SSHQGL[$*ORVVDU\ $SSHQGL[%'LVFRXQWUDWHVIRUWKH36&DQGELGV±PDWHULDOV\VWHPDWLFULVNWUDQVIHU $SSHQGL[&&DVHVWXG\±9LFWRULDQ&RXQW\&RXUW $SSHQGL['%LEOLRJUDSK\ L
3DUWQHUVKLSV9LFWRULD
'LVFRXQW5DWHV
,Q -XQH WKH 9LFWRULDQ *RYHUQPHQW ODXQFKHG LWV 3DUWQHUVKLSV 9LFWRULD SROLF\
RQHVWDEOLVKLQJSDUWQHUVKLSVZLWKWKHSULYDWHVHFWRUWRSURYLGHSXEOLFLQIUDVWUXFWXUH
DQGUHODWHGDQFLOODU\VHUYLFHV $QLQLWLDOVHWRIJXLGDQFHPDWHULDOZDVUHOHDVHGLQ
-XQH WR DVVLVW GHSDUWPHQWV DQG DJHQFLHV LQ XQGHUWDNLQJ 3DUWQHUVKLSV
9LFWRULDSURMHFWV
)RU VSHFLILF SURFHVVHV GXULQJ D 3DUWQHUVKLSV 9LFWRULD SURMHFW GLVFRXQWHG
FDVKIORZ'&)DQDO\VLVLVUHTXLUHGWRFRPSDUHGLIIHUHQWFDVKIORZVWUHDPV7KLV
7HFKQLFDO1RWHSURYLGHVVSHFLILFJXLGDQFHRQFDOFXODWLQJDQGXVLQJGLVFRXQWUDWHV
LQXQGHUWDNLQJ'&)DQDO\VLVIRU
L FRQVWUXFWLQJD3XEOLF6HFWRU&RPSDUDWRU36&
LL HYDOXDWLQJELGV
7KHVH WZR SURFHVVHV DUH UHTXLUHG WR DVVLVW LQ GHWHUPLQLQJ ZKHWKHU JRYHUQPHQW
FDQREWDLQEHWWHUYDOXHIRUPRQH\E\

GHOLYHULQJ WKH SURMHFW LWVHOI WKURXJK PRUH WUDGLWLRQDO PHDQV WKH ZKROHRIOLIH
ULVNLQFOXVLYHFRVWRIZKLFKLVHVWLPDWHGE\WKH36&RU

GHOLYHU\WKURXJK3DUWQHUVKLSV9LFWRULDWKHFRVWRIZKLFKLVUHSUHVHQWHGE\WKH
SULYDWHVHFWRUELGV
$V WKH FDVK IORZ SURILOHV RI WKH 36& DQG SULYDWH VHFWRU ELGV ZLOO GLIIHU '&)
DQDO\VLVLVXVHGWRFRPSDUHWKHPRQDFRQVLVWHQWEDVLV
'LVFRXQWUDWHFRQFHSWV
'&) DQDO\VLV UHFRJQLVHV WKH FRQFHSW WKDW D GROODU WRGD\ LV ZRUWK PRUH WKDQ D
GROODULQWKHIXWXUH7KLVUHIOHFWVWKHRSSRUWXQLW\FRVWRIFDSLWDO±UHYHQXHVHDUQHG
HDUOLHUFDQHDUQDUHWXUQRUUHGXFHWKHFRVWRIERUURZLQJ
7ZRPDLQLQSXWVDUHUHTXLUHGIRU'&)DQDO\VLV
L IRUHFDVWFDVKIORZVRYHUWKHWHUPRIWKHSURMHFW
LL GLVFRXQWUDWH
7KH DFFXUDF\ RI WKH '&) DQDO\VLV GHSHQGV RQ WKH DFFXUDF\ RI ERWK WKH IRUHFDVW
FDVKIORZVDQGWKHHVWLPDWLRQRIWKHGLVFRXQWUDWH&RQVLGHUDWLRQPXVWEHJLYHQWR
HQVXUHWKDWWKHOHYHORIDFFXUDF\RIERWKHOHPHQWVLVVLPLODU:KLOHWKLV7HFKQLFDO
1RWH IRFXVHV RQ KRZ WKH GLVFRXQW UDWH LV FDOFXODWHG WKH 3DUWQHUVKLSV 9LFWRULD
3XEOLF 6HFWRU &RPSDUDWRU 7HFKQLFDO 1RWH LVVXHG LQ -XQH DQG WKH 3XEOLF
6HFWRU &RPSDUDWRU 6XSSOHPHQWDU\ 7HFKQLFDO 1RWH LVVXHG LQ -XO\ SURYLGH
JXLGDQFHRQWKHSUHSDUDWLRQRIIRUHFDVWFDVKIORZV
'HSDUWPHQWRI7UHDVXU\DQG)LQDQFH3DUWQHUVKLSV9LFWRULD3ROLF\6WDWHPHQW-XQHDYDLODEOH
YLDZZZSDUWQHUVKLSVYLFJRYDX
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
7KH SULQFLSOHV IRU GHWHUPLQLQJ GLVFRXQW UDWHV IRU '&) DQDO\VLV DUH EDVHG RQ WKH
WKHRU\XVHGWRFDOFXODWHWKHFRVWRIFDSLWDOUHSUHVHQWHGE\WKHFDSLWDODVVHWSULFLQJ
PRGHO&$30:KLOHWKHUHDUHRWKHUIUDPHZRUNVZKLFKFRXOGEHXVHG&$30LV
WKHPRVWZLGHO\DFFHSWHGDQGH[WHQVLYHO\GHYHORSHGWKHRUHWLFDODSSURDFK
,Q&$30WKHFRVWRIFDSLWDOUHIOHFWVWKHUHWXUQUHTXLUHGE\DQLQYHVWRUWRXQGHUWDNH
RU LQYHVW LQ D SDUWLFXODU SURMHFW 7KH UHTXLUHG UHWXUQ LV HTXDO WR WKH ULVNIUHH UDWH
SOXVDULVNSUHPLXPIRUWKHV\VWHPDWLFRUPDUNHWULVNVUHWDLQHGE\WKHLQYHVWRU
6\VWHPDWLF ULVNV DUH ULVNV WKDW DIIHFW DOO DVVHWV ZLWKLQ D GLYHUVLILHG SRUWIROLR RI
DVVHWVDQGWKHUHIRUHFDQQRWEHHOLPLQDWHGE\KROGLQJVXFKDSRUWIROLR([DPSOHVRI
VXFKULVNVIRUD3DUWQHUVKLSV9LFWRULDSURMHFWLQFOXGH

GHPDQGULVNUHODWLQJWRWKHOHYHORIJHQHUDOHFRQRPLFDFWLYLW\

XQH[SHFWHGLQIODWLRQ

WKHHIIHFWRIXQH[SHFWHGFKDQJHVLQLQWHUHVWUDWHVRUIRUHLJQH[FKDQJHUDWHVRQ
DVVHWYDOXHV

XQH[SHFWHGREVROHVFHQFH

EURDGPDUNHWULVNVVXFKDVDPDWHULDOULVHLQEDQNUXSWFLHVDIIHFWLQJVXSSO\
&$30LVXVHGWRFDOFXODWHWKHFRVWRIFDSLWDODQGLVH[SUHVVHGDV
5D 5IbD5P±5I
ZKHUH
5D
LVWKHFRVWRIFDSLWDORIRUUHTXLUHGUHWXUQRQDVVHWVZKRVHULVN
FODVVLVGHVLJQDWHGE\WKHDVVHWEHWDRUV\VWHPDWLFULVN
5I
LVWKHULVNIUHHUDWH
bD
LV WKH DVVHW EHWD ZKLFK UHIOHFWV WKH GHJUHH WKDW DVVHW UHWXUQV
LH UHWXUQV RI D SDUWLFXODU SURMHFW DUH H[SHFWHG WR YDU\ ZLWK
UHWXUQVRIWKHPDUNHWDVDZKROHLHDZHOOGLYHUVLILHGSRUWIROLR
RIDVVHWVRUSURMHFWVRWKHUZLVHNQRZQDVWKHV\VWHPDWLFULVN
5P±5I
LV WKH PDUNHW ULVN SUHPLXP 053 WKDW DQ LQYHVWRU ZRXOG
H[SHFWWRUHFHLYHEHIRUHLQYHVWLQJLQDQDVVHWH[DFWO\FRUUHODWHG
ZLWKWKHPDUNHW
5LVNIUHHUDWH
)RU 3DUWQHUVKLSV 9LFWRULD SURMHFWV WKH ULVNIUHH UDWH LV GHWHUPLQHG WR EH HTXDO WR
WKH UHFHQW DYHUDJH RI WKH WHQ\HDU &RPPRQZHDOWK %RQG UDWH 7KLV LV FXUUHQWO\
GHWHUPLQHGE\WKH'HSDUWPHQWRI7UHDVXU\DQG)LQDQFH'7)DVSHUDQQXP
QRPLQDORUDURXQGSHUDQQXPUHDO
7KHULVNIUHHUDWHZLOOEHUHYLHZHGIURPWLPHWRWLPHE\'7)DQGDUHYLVHGUDWHZLOO
EHSXEOLVKHGYLDZZZSDUWQHUVKLSVYLFJRYDXZKHQFRQVLGHUHGQHFHVVDU\
3DUWQHUVKLSV9LFWRULD
'LVFRXQW5DWHV
$VVHWEHWD
)RU HDFK SURMHFW DQ DVVHW EHWD LV GHWHUPLQHG DVVXPLQJ WKDW JRYHUQPHQW LV
XQGHUWDNLQJ WKH SURMHFW GLUHFWO\ DQG WKHUHIRUH UHWDLQV DOO RI WKH V\VWHPDWLF ULVNV
LQKHUHQW LQ WKH SURMHFW 7KHRUHWLFDOO\ HDFK SURMHFW KDV D GLIIHUHQW OHYHO RI
V\VWHPDWLF ULVN DQG WKHUHIRUH VKRXOG KDYH D XQLTXH DVVHW EHWD +RZHYHU IRU WKH
PDMRULW\RISURMHFWVWKHPDUJLQDOEHQHILWVIURPFDOFXODWLQJDXQLTXHDVVHWEHWDDUH
RXWZHLJKHGE\WKHFRVWV
,QRUGHUWRGHWHUPLQHWKHYDOXHRIWKHDVVHWEHWD'7)KDVHVWDEOLVKHGWKUHHULVN
EDQGVWKDWFRYHUWKHUDQJHLQZKLFKWKHPDMRULW\RI3DUWQHUVKLSV9LFWRULDSURMHFWV
ZLOOIDOO7KHVHULVNEDQGVDUHRXWOLQHGLQ7DEOH
7DEOH
5LVNEDQGVIRUPRVW3DUWQHUVKLSV9LFWRULDSURMHFWFDWHJRULHV
5LVN
EDQG
3URMHFWVHFWRUVDQGH[DPSOHSURMHFWV
$VVHWEHWD
5HDOULVN
SUHPLXP
9HU\ORZ
$FFRPPRGDWLRQDQGUHODWHGVHUYLFHV
$JHGFDUHKRXVLQJ
3XEOLFKRXVLQJ
+RVSLWDOIDFLOLWLHV
&RUUHFWLRQDOIDFLOLWLHV
/RZ
:DWHUWUDQVSRUWDQGHQHUJ\
:DVWHZDWHUWUHDWPHQWSODQWV
:DWHULQIUDVWUXFWXUH
+RVSLWDOFDUSDUNLQJ
+RVSLWDOHQHUJ\SODQWV
5RDGSURMHFWVQRQWROO
0HGLXP
7HOHFRPPXQLFDWLRQVPHGLDDQG
WHFKQRORJ\
(QWHUWDLQPHQW
7HOHFRPPXQLFDWLRQVDQG,7
.QRZOHGJHHFRQRP\
5HDO
GLVFRXQW
UDWH
URXQGHG
WRQHDUHVWZKROH
QXPEHU
URXQGHG
WRQHDUHVWZKROH
QXPEHU
5LVN SUHPLXP DVVXPHV D PDUNHW ULVN SUHPLXP RI 7KH UHDO ULVN SUHPLXP LV FDOFXODWHG DV
PDUNHWULVNSUHPLXP[DVVHWEHWD
7KH UHDO UDWH ZLOO EH XSGDWHG E\ '7) DW ZZZSDUWQHUVKLSVYLFJRYDX IURP WLPH WR WLPH DV
UHTXLUHG
7KHVHEHWDVPD\EHORZHUWKDQWKRVHREVHUYDEOHZLWKLQWKHJHQHUDOPDUNHW7KLV
UHIOHFWVWKHQDWXUHRISURMHFWVLQZKLFKJRYHUQPHQWLVLQYROYHG
7KHFDWHJRULVDWLRQVLQ7DEOHDUHSURYLGHGDVDJXLGHRQO\DQGLWLVXQGHUVWRRG
WKDW WKHUH LV QR W\SLFDO µWHOHFRPPXQLFDWLRQV PHGLD DQG WHFKQRORJ\¶ SURMHFW IRU
LQVWDQFH(DFKSURMHFWVKRXOGEHDVVHVVHGRQDFDVHE\FDVHEDVLVWRHQVXUHWKDW
LW LV SODFHG LQ WKH DSSURSULDWH EDQG $OVR IRU ODUJH RU KLJKHU V\VWHPDWLF ULVN
SURMHFWVDGGLWLRQDOFRQVLGHUDWLRQPD\EHZDUUDQWHGDVWRZKHWKHUWKHVHOHFWLRQRI
D EHWD IURP WKHVH EDQGV LV DSSURSULDWH 7KLV LV SDUWLFXODUO\ UHOHYDQW LQ VLWXDWLRQV
ZKHUHGHPDQGULVNLVWREHWUDQVIHUUHGVXFKDVWKHSURSRVHG0LWFKDP)UDQNVWRQ
)UHHZD\
2IILFHU5µ7KH&RVWRI&DSLWDOIRUWKH6WDWHRI9LFWRULDD6\QRSVLV¶3DSHUFRPPLVVLRQHGE\WKH
'HSDUWPHQWRI7UHDVXU\DQG)LQDQFH0D\SDQGFRQILUPHGLQPRUHUHFHQWGLVFXVVLRQV
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
$VDJHQHUDOUXOHLQVLWXDWLRQVZKHUHDSURMHFWKDVPXOWLSOHFRPSRQHQWVHDFKZLWK
D GLIIHUHQW SRWHQWLDO DVVHW EHWD WKH ULVN EDQG WKDW UHSUHVHQWV WKH PDMRULW\ RI WKH
SURMHFWVKRXOGEHXVHG+RZHYHULIWKHGLIIHUHQWFRPSRQHQWVUHSUHVHQWVLJQLILFDQW
SRUWLRQVRIWKHSURMHFWVRPHDGMXVWPHQWPD\EHUHTXLUHGWRWKHULVNEDQGVDERYH
)RUH[DPSOHLQDSURMHFWZKHUHDKRVSLWDODQGDFDUSDUNDUHWREHFRQVWUXFWHGLI
WKHULVNVRIWKHFDUSDUNDQGLWVUHODWLYHZHLJKWLQJZLWKLQWKHSURMHFWDUHVLJQLILFDQW
DEHWDYDOXHLQEHWZHHQWKHYHU\ORZDQGORZULVNEDQGVPD\EHDSSURSULDWH$Q
DOWHUQDWLYH DSSURDFK ZKHUH WKH GLIIHUHQFHV DUH PDWHULDO LV WR VHSDUDWH WKH FDVK
IORZIRUWKHPXOWLSOHFRPSRQHQWVXVLQJGLIIHUHQWDVVHWEHWDVDVDSSURSULDWH
0DUNHWULVNSUHPLXP
)RU WKH SXUSRVHV RI 3DUWQHUVKLSV 9LFWRULD SURMHFWV '7) LV XVLQJ D PDUNHW ULVN
SUHPLXP RI DV FXUUHQWO\ HVWLPDWHG E\ 3URIHVVRU 5 2IILFHU 7KLV UDWH ZLOO EH
UHYLHZHGIURPWLPHWRWLPHE\'7)DQGFKDQJHGLIFRQVLGHUHGQHFHVVDU\
&RQVLVWHQF\EHWZHHQGLVFRXQW
UDWHVDQGFDVKIORZV
'&) DQDO\VLV UHTXLUHV WKH PHWKRGRORJ\ WR FDOFXODWH GLVFRXQW UDWHV DQG SURMHFW
FDVKIORZVWREHFRQVLVWHQW,Q'&)DQDO\VLVFRPPRQHUURUVPD\RFFXULQUHODWLRQ
WR WKH WUHDWPHQW RI WD[ DQG LQIODWLRQ *HQHUDOO\ IRU 3DUWQHUVKLSV 9LFWRULD SURMHFWV
'7) UHFRPPHQGV WKDW LQ '&) DQDO\VLV GLVFRXQW UDWHV DQG FDVK IORZV DUH
FDOFXODWHG

RQDSUHWD[EDVLV
XVLQJQRPLQDODPRXQWVWKDWLVFDVKIORZVDGMXVWHGWRLQFOXGHLQIODWLRQ
'HWHUPLQLQJGLVFRXQWUDWHVIRU36&
FRQVWUXFWLRQDQGELGHYDOXDWLRQ
3ULYDWHVHFWRUELGVDUHHYDOXDWHGDJDLQVWWKH36&DVSDUWRIDVVHVVLQJZKHWKHULW
LVEHWWHUYDOXHIRUJRYHUQPHQWWRFRQWUDFWZLWKWKHSULYDWHVHFWRULQD3DUWQHUVKLSV
9LFWRULD DUUDQJHPHQW RU WR GHOLYHU WKH SURMHFW GLUHFWO\ DV D FDSLWDO ZRUNV SURMHFW
7KHUHIRUH WKH GLVFRXQW UDWH PHWKRGRORJ\ XVHG WR FDOFXODWH WKH 36& PXVW EH
FRQVLVWHQWZLWKWKDWXVHGWRDVVHVVSULYDWHVHFWRUELGV
7KH 36& LV EDVHG RQ WKH JRYHUQPHQW UHIHUHQFH SURMHFW ZKLFK DVVXPHV WKDW DOO
V\VWHPDWLFULVNVLQKHUHQWLQWKHSURMHFWDUHUHWDLQHGE\JRYHUQPHQW 7KHGLVFRXQW
UDWHIRU36&FDOFXODWLRQLVJHQHUDOO\GHWHUPLQHGRQWKLVEDVLV
)RU *RYHUQPHQW %XVLQHVV (QWHUSULVHV VXEMHFW WR FRPSDQ\ WD[ RU WD[HTXLYDOHQW UHJLPHV XVH RI
SRVWWD[FDVKIORZVDQGGLVFRXQWUDWHVPD\EHPRUHDSSURSULDWH
8QGHU WUDGLWLRQDO SURFXUHPHQW LH LPSOHPHQWDWLRQ RI WKH UHIHUHQFH SURMHFW VRPH V\VWHPDWLF ULVN
PD\EHWUDQVIHUUHGWRDFRQWUDFWRUHJZLWKLQDWXUQNH\FRQWUDFWEXWIRUVLPSOLFLW\DOOV\VWHPDWLF
ULVNKDVEHHQDVVXPHGWREHUHWDLQHGE\JRYHUQPHQW
3DUWQHUVKLSV9LFWRULD
'LVFRXQW5DWHV
8QGHU D 3DUWQHUVKLSV 9LFWRULD GHOLYHU\ PHFKDQLVP V\VWHPDWLF ULVNV PD\ EH
WUDQVIHUUHG WR WKH SULYDWH VHFWRU 7KHUHIRUH ZKHUH WKH SURMHFW LV GHOLYHUHG LQ
FRQMXQFWLRQZLWKWKHSULYDWHVHFWRUJRYHUQPHQWFDVKIORZVDUHOLNHO\WREHVXEMHFW
WROHVVV\VWHPDWLFULVNWKDQWKH36&)RUPRVWSURMHFWVLQWKHYHU\ORZDQGORZULVN
FDWHJRULHVWKLVWUDQVIHURIV\VWHPDWLFULVNLVXQOLNHO\WREHPDWHULDODQGDFRPPRQ
GLVFRXQWUDWHVKRXOGEHXVHGE\JRYHUQPHQWIRUWKH36&DQGIRUDVVHVVLQJELGV
+RZHYHUIRU3DUWQHUVKLSV9LFWRULDSURMHFWVZKHUHWKHUHLVPDWHULDOV\VWHPDWLFULVN
WUDQVIHU WR WKH SULYDWH SDUW\ LW LV UHFRPPHQGHG WKDW GLIIHUHQW GLVFRXQW UDWHV EH
XVHGWRFDOFXODWHWKH36&DQGWRDVVHVVSULYDWHVHFWRUELGVEDVHGRQWKHOHYHORI
V\VWHPDWLFULVNVWUDQVIHUUHGWRWKHSULYDWHVHFWRU7KHFDOFXODWLRQRIWKHVHGLIIHUHQW
GLVFRXQW UDWHV ZLOO GHSHQG RQ ZKHWKHU JRYHUQPHQW¶V QHW FDVK IORZV IURP WKH
SURMHFWDUHSRVLWLYHLHQHWFDVKLQIORZRUQHJDWLYHLHQHWFDVKRXWIORZ
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
6WDWXVRIWKLVWHFKQLFDOQRWH
7KH9LFWRULDQ*RYHUQPHQWODXQFKHGLWV3DUWQHUVKLSV9LFWRULDSROLF\LQ-XQH 7KLVVHWVRXWWKH*RYHUQPHQW¶VSROLF\LQUHODWLRQWRHVWDEOLVKLQJSDUWQHUVKLSVZLWK
WKHSULYDWHVHFWRUWRSURYLGHSXEOLFLQIUDVWUXFWXUHDQGUHODWHGDQFLOODU\VHUYLFHV
$IWHUWKHSROLF\ZDVUHOHDVHGGHWDLOHGJXLGDQFHPDWHULDOZDVSURYLGHGIRUXVHE\
GHSDUWPHQWV DQG DJHQFLHV WR DVVLVW WKHP LQ XQGHUWDNLQJ 3DUWQHUVKLSV 9LFWRULD
SURMHFWV7KHJXLGDQFHPDWHULDOUHOHDVHGLQ-XQHFRQVLVWHGRI

DQ2YHUYLHZ

D3UDFWLWLRQHUV¶*XLGH

D5LVN$OORFDWLRQDQG&RQWUDFWXDO,VVXHVJXLGHDQG

D3XEOLF6HFWRU&RPSDUDWRU7HFKQLFDO1RWH
7HFKQLFDO QRWHV SURYLGH GHWDLOHG JXLGDQFH RQ VSHFLILF DUHDV WR GHSDUWPHQWV DQG
DJHQFLHVXQGHUWDNLQJD3DUWQHUVKLSV9LFWRULDSURMHFW7KH\DUHUHOHDVHGIURPWLPH
WR WLPH DV FRQVLGHUHG QHFHVVDU\ 7KLV 7HFKQLFDO 1RWH LV EHLQJ UHOHDVHGZLWKWKH
3XEOLF6HFWRU&RPSDUDWRU6XSSOHPHQWDU\7HFKQLFDO1RWHLVVXHGLQ-XO\WKDW
SURYLGHVIXUWKHUGHWDLOHGJXLGDQFHRQWKHFRQVWUXFWLRQDQGXVHRID3XEOLF6HFWRU
&RPSDUDWRU DQG LQFOXGHV D FRPSUHKHQVLYH ZRUNHG H[DPSOH (DFK JXLGH DQG
WHFKQLFDO QRWH VKRXOG EH UHDG LQ FRQMXQFWLRQ ZLWK WKH RWKHU 3DUWQHUVKLSV 9LFWRULD
SXEOLFDWLRQV
6WUXFWXUHRIWKLVWHFKQLFDOQRWH
7KLV 7HFKQLFDO 1RWH SURYLGHV JXLGDQFH RQ WKH FDOFXODWLRQ DQG XVH RI GLVFRXQW
UDWHVLQWKHIROORZLQJSURFHVVHVUHTXLUHGLQD3DUWQHUVKLSV9LFWRULDSURMHFW

FRQVWUXFWLQJD3XEOLF6HFWRU&RPSDUDWRU36&

HYDOXDWLQJSULYDWHVHFWRUELGVLQFOXGLQJHYDOXDWLRQDJDLQVWWKH36&
&KDSWHUGLVFXVVHVKRZGLVFRXQWUDWHVDUHXVHGLQWKHVHSURFHVVHV
$ VXPPDU\ RI WKH SULQFLSOHV XQGHUO\LQJ GLVFRXQW UDWH FDOFXODWLRQV LV SURYLGHG LQ
&KDSWHU 6SHFLILF LVVXHV UHODWLQJ WR FDOFXODWLQJ GLVFRXQW UDWHV IRU JRYHUQPHQW
SURMHFWVDUHGLVFXVVHGLQ&KDSWHU
&KDSWHU GLVFXVVHV KRZ GLVFRXQW UDWHV DUH XVHG WR FDOFXODWH WKH 36& DQG LQ
HYDOXDWLQJSULYDWHVHFWRUELGV
'HSDUWPHQW RI 7UHDVXU\ DQG )LQDQFH 3DUWQHUVKLSV 9LFWRULD 3ROLF\ 6WDWHPHQW -XQH UHIHU WR
ZZZSDUWQHUVKLSVYLFJRYDX
3DUWQHUVKLSV9LFWRULD
'LVFRXQW5DWHV
$GGLWLRQDOXVHVRIGLVFRXQWUDWHVGXULQJD3DUWQHUVKLSV9LFWRULDSURMHFWDUHEULHIO\
GLVFXVVHGLQ&KDSWHU
&KDSWHUSURYLGHVDOLVWRIIUHTXHQWO\DVNHGTXHVWLRQVWRDVVLVWUHDGHUVLQIXUWKHU
XQGHUVWDQGLQJWKHXVHRIGLVFRXQWUDWHVLQWKH3DUWQHUVKLSV9LFWRULDSURFHVV
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
7KHFDVKLQIORZVDQGRXWIORZVIURPDSURMHFWZLOOYDU\RYHUWKHWHUPRIWKHSURMHFW
7R DVVHVV WKHVH FDVK IORZV WKH\ DUH GLVFRXQWHG WR D VLQJOH SRLQW LQ WLPH 7KLV
SURFHVV RI GLVFRXQWLQJ FDVK IORZV LV NQRZQ DV GLVFRXQWHG FDVK IORZ '&)
DQDO\VLV )RU '&) DQDO\VLV LQ 3DUWQHUVKLSV 9LFWRULD SURMHFWV WKH PHWKRG XVHG WR
FDOFXODWH WKH GLVFRXQW UDWH LV EDVHG RQ WKH WKHRU\ XVHG WR FDOFXODWH WKH FRVW RI
FDSLWDO
'XULQJ D 3DUWQHUVKLSV 9LFWRULD SURMHFW '&) DQDO\VLV LV UHTXLUHG IRU D YDULHW\ RI
GHFLVLRQPDNLQJSURFHVVHV7KHSULQFLSDOSURFHVVHVDUH
L LQYHVWPHQW GHFLVLRQ ± XQGHUWDNLQJ FRVWEHQHILW DQDO\VLV WR GHWHUPLQH
ZKHWKHULQYHVWPHQWLQDSURMHFWVKRXOGEHXQGHUWDNHQ)RUFRPSOHWHQHVVWKH
LQYHVWPHQWGHFLVLRQLVEULHIO\GLVFXVVHGLQ&KDSWHU
LL 3XEOLF 6HFWRU &RPSDUDWRU 36& ± GHWHUPLQLQJ WKH 36& WR EH XVHG DV D
EHQFKPDUNLQDVVHVVLQJSULYDWHVHFWRUELGVIRUWKHSURMHFW
LLL ELGHYDOXDWLRQ±DVVHVVLQJSULYDWHVHFWRUELGVWRFRPSDUHDJDLQVWWKH36&
7KLV 7HFKQLFDO 1RWH IRFXVHV RQ WKH FDOFXODWLRQ DQG XVH RI GLVFRXQW UDWHV LQ
GHWHUPLQLQJ WKH 36& DQG IRU ELG HYDOXDWLRQ 7KHVH SURFHVVHV DUH VROHO\
FRQFHUQHGZLWKFRPSDULQJDOWHUQDWLYHPHDQVRIGHOLYHULQJDSURMHFW±HLWKHUGLUHFWO\
E\JRYHUQPHQWRULQFRQMXQFWLRQZLWKWKHSULYDWHVHFWRUDVD3DUWQHUVKLSV9LFWRULD
SURMHFW
3XEOLF6HFWRU&RPSDUDWRU36&
7KHGHSDUWPHQWRUDJHQF\VSRQVRULQJD3DUWQHUVKLSV9LFWRULDSURMHFWZLOOJHQHUDOO\
QHHGWRGHYHORSD36& 7KH36&LVDQHVWLPDWHRIWKHULVNLQFOXVLYHZKROHRIOLIH
FRVW RI SURYLGLQJ WKH WHQGHUHG VHUYLFHV XQGHU SXEOLF VHFWRU ILQDQFLQJ DQG
PDQDJHPHQW )RU GHWHUPLQLQJ WKH 36& WKH VFRSH RI WKH SURMHFW LV OLPLWHG WR WKRVH SURMHFW
FRPSRQHQWV IRU ZKLFK WKH SULYDWH VHFWRU ZLOO EH UHTXHVWHG WR ELG 7KHVH
FRPSRQHQWVIRUPWKHUHIHUHQFHSURMHFW7KHUHIHUHQFHSURMHFWPD\EHDVXEVHWRI
WKH SURMHFW FRPSRQHQWV UHYLHZHG LQ WKH LQYHVWPHQW GHFLVLRQ DV VKRZQ LQ WKH
IROORZLQJH[DPSOH
3DUWQHUVKLSV9LFWRULD3UDFWLWLRQHUV¶*XLGHSUHIHUWRZZZSDUWQHUVKLSVYLFJRYDX
3DUWQHUVKLSV9LFWRULD3ULYDWH6HFWRU&RPSDUDWRU7HFKQLFDO1RWHS
3DUWQHUVKLSV9LFWRULD
'LVFRXQW5DWHV
([DPSOH±3URMHFWFRPSRQHQWV
&RQVLGHUDJRYHUQPHQWSURMHFWWREXLOGDQHZSXEOLFKRVSLWDO7KLVPD\UHTXLUHDW
OHDVWWKHIROORZLQJSURMHFWFRPSRQHQWV
L FRQVWUXFWLRQRIDQHZKRVSLWDOIDFLOLW\
LL RQJRLQJIDFLOLW\PDLQWHQDQFH
LLL SHULRGLFIDFLOLW\UHIXUELVKPHQW
LY SURYLVLRQRIPHGLFDOVHUYLFHVWRSDWLHQWV
$OOWKHSURMHFWFRPSRQHQWVZRXOGQHHGWREHFRQVLGHUHGE\JRYHUQPHQWGXULQJWKH
LQYHVWPHQWGHFLVLRQSURFHVVDOWKRXJKWKHUHIHUHQFHSURMHFWLVOLNHO\WRLQFOXGHRQO\
FRPSRQHQWV L WR LLL 7KHUHIRUH WKH 36& ZRXOG RQO\ LQFOXGH WKH FRVW RI WKHVH
WKUHHFRPSRQHQWV7KHODVWFRPSRQHQWWKHSURYLVLRQRIPHGLFDOVHUYLFHVLVOLNHO\
WREHFRQVLGHUHGDFRUHVHUYLFHWKDWJRYHUQPHQWZRXOGSURYLGHGLUHFWO\DWWKHQHZ
KRVSLWDO
7KH36&LVWKHSULPDU\ILQDQFLDOEHQFKPDUNDJDLQVWZKLFKSULYDWHVHFWRUELGVDUH
DVVHVVHGWRGHWHUPLQHZKHWKHUJRYHUQPHQWZLOOREWDLQEHWWHUYDOXHE\XQGHUWDNLQJ
WKHSURMHFWDVD3DUWQHUVKLSV9LFWRULDSURMHFWRUDVDJRYHUQPHQWEXLOGSURMHFW $V WKH 36& FRPSULVHV D IRUHFDVW RI WKH SURMHFW FDVK LQIORZV DQG RXWIORZV '&)
DQDO\VLVLVXVHGWRGHWHUPLQHDYDOXHDWDVLQJOHSRLQWLQWLPH7KLVYDOXHLVNQRZQ
DVWKH

QHWSUHVHQWYDOXH139ZKHUHWKHUHLVDQHWFDVKLQIORZWRJRYHUQPHQW

QHWSUHVHQWFRVW13&ZKHUHWKHUHLVDQHWFDVKRXWIORZWRJRYHUQPHQW 7KLV 7HFKQLFDO 1RWH H[SODLQV KRZ GLVFRXQW UDWHV DUH FDOFXODWHG DQG XVHG WR
GHWHUPLQHWKH36&
%LGHYDOXDWLRQ
3ULYDWHVHFWRUELGVIRUDSURMHFWFRQWDLQIRUHFDVWVRIWKHFDVKIORZVWREHUHFHLYHG
DQGRUSDLGE\JRYHUQPHQWRYHUWKHWHUPRIWKHSURMHFW,QDGGLWLRQWKHELGVPD\
FRQWDLQGHWDLOVUHJDUGLQJFDVKIORZVWRRWKHUSDUWLHVZKHUHUHOHYDQW'&)DQDO\VLV
LVXVHGWRFRPSDUHWKHYDOXHRIJRYHUQPHQWFDVKIORZVDULVLQJIURPGLIIHUHQWELGV
DQG IRU FRPSDULVRQ ZLWK WKH 36& FDVK IORZV 7R DFFXUDWHO\ DVVHVV WKH ELGV
DJDLQVWWKH36&WKHSULQFLSOHVXVHGLQXQGHUWDNLQJWKH'&)DQDO\VLVPXVWDOVREH
FRQVLVWHQW7KLV7HFKQLFDO1RWHH[SODLQVKRZWKHGLVFRXQWUDWHLVGHWHUPLQHGDQG
WKHQXVHGWRDVVHVVELGV
,Q SURMHFWV ZKHUH JRYHUQPHQW ZLOO XVH WKH IDFLOLW\ WR SURYLGH FRUH VHUYLFHV WKH FRVW LPSDFW RI WKH
ELGGHU¶VGHVLJQRQWKHHIILFLHQF\RIJRYHUQPHQW¶VRSHUDWLRQRIWKHIDFLOLWLHVZLOODOVREHFRQVLGHUHGLQ
WKHJRYHUQPHQW¶VYDOXHIRUPRQH\DVVHVVPHQW
$Q13&FDQDOVREHWKRXJKWRIDVDQHJDWLYH139
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
'LVFRXQWHGFDVKIORZ'&)DQDO\VLVUHTXLUHVWZRPDLQLQSXWV
L IRUHFDVWFDVKIORZVRYHUWKHWHUPRIWKHSURMHFW
LL DGLVFRXQWUDWH
7KH DFFXUDF\ RI WKH '&) DQDO\VLV GHSHQGV RQ WKH DFFXUDF\ RI ERWK WKH IRUHFDVW
FDVK IORZV DQG WKH HVWLPDWLRQ RI WKH GLVFRXQW UDWH 7KH OHYHO RI DFFXUDF\ RI ERWK
HOHPHQWV VKRXOG EH VLPLODU :KLOH WKLV 7HFKQLFDO 1RWH IRFXVHV RQ WKH
GHWHUPLQDWLRQRIWKHGLVFRXQWUDWHIXUWKHUGLVFXVVLRQRIWKHHVWLPDWLRQRIIRUHFDVW
FDVKIORZVLVSURYLGHGLQWKH3XEOLF6HFWRU&RPSDUDWRU7HFKQLFDO1RWH
$VQRWHGWKHSULQFLSOHVIRUGHWHUPLQLQJGLVFRXQWUDWHVIRU'&)DQDO\VLVDUHEDVHG
RQ WKH WKHRU\ XVHG WR FDOFXODWH WKH FRVW RI FDSLWDO 7KLV VHFWLRQ LQWURGXFHV WKLV
WKHRU\ DQG WKH EDVLF FRQFHSWV XQGHUO\LQJ WKH FRVW RI FDSLWDO :KLOH D GHWDLOHG
XQGHUVWDQGLQJRIFDSLWDOPDUNHWWKHRU\LVQRWUHTXLUHGLWLVXVHIXOWRKDYHDEDVLF
XQGHUVWDQGLQJ RI KRZ WKH FRVW RI FDSLWDO LV GHWHUPLQHG ,Q SDUWLFXODU DQ
XQGHUVWDQGLQJ RI WKH UHODWLRQVKLS EHWZHHQ WKH WUHDWPHQW RI FDVK IORZV DQG
GHWHUPLQDWLRQRIWKHGLVFRXQWUDWHLVQHHGHG
7KH WKHRU\ GLVFXVVHG EHORZ LV UHODWLYHO\ JHQHULF DQG UHTXLUHV PRGLILFDWLRQ EHIRUH
DSSO\LQJLWWRWKHGHWHUPLQDWLRQRIWKHGLVFRXQWUDWHWREHXVHGWRFDOFXODWHWKH36&
DQGIRUELGHYDOXDWLRQ7KLVJHQHULFWKHRU\PD\EHUHDGLO\DSSOLFDEOHWRRWKHUXVHV
RIWKHFRVWRIFDSLWDOVXFKDVIRUWKHLQYHVWPHQWGHFLVLRQDQGIXQGLQJDOORFDWLRQ
7KH FDSLWDO DVVHW SULFLQJ PRGHO &$30 FDQ EH XVHG WR GHWHUPLQH JRYHUQPHQW¶V
FRVWRIFDSLWDO7KHUHLVFRQVLGHUDEOHDFDGHPLFOLWHUDWXUHGHDOLQJZLWK&$307KLV
7HFKQLFDO 1RWH SURYLGHV D VLPSOH VXPPDU\ RI WKLV WKHRU\ 7KH ELEOLRJUDSK\ LQ
$SSHQGL[ ' SURYLGHV VRPH VRXUFHV RI IXUWKHUUHDGLQJIRULQWHUHVWHGUHDGHUV7KH
XVH RI &$30 LV QRW XQLYHUVDOO\ DFFHSWHG ,W KDV EHHQ WKH VXEMHFW RI D QXPEHU RI
DFDGHPLF FULWLTXHV +RZHYHU LW UHPDLQV WKH PRVW ZLGHO\ DFFHSWHG WKHRU\ RI WKH
FRVWRIFDSLWDO &RVWRIFDSLWDO±SULQFLSOHV
7KH FRVW RI FDSLWDO LQ SULYDWH FDSLWDO PDUNHWV LV GHWHUPLQHG E\ WKH LQWHUDFWLRQ
EHWZHHQ FRPSHWLQJ XVHUV DQG FRPSHWLQJ SURYLGHUV RI FDSLWDO 7KLV LQWHUDFWLRQ
UHVXOWV LQ D FRVW RI FDSLWDO IRU DQ\ VSHFLILF DVVHW WKDW UHIOHFWV WKH UHWXUQV WKDW
LQYHVWRUV FRXOG KDYHUHFHLYHGE\LQYHVWLQJLQRWKHUDVVHWVZLWKFRPSDUDEOHULVNV
7KHFRVWRIFDSLWDOLVWKHUHIRUH

DQRSSRUWXQLW\FRVW±PHDVXUHGE\IRUHJRQHLQYHVWPHQWVLQFRPSDUDEOHDVVHWV

EDVHGRQH[SHFWDWLRQVRIIXWXUHDQGXQFHUWDLQUHWXUQV
)RU D GLVFXVVLRQ RI WKH YDOLGLW\ RI &$30 DQG VRPH DOWHUQDWLYH WKHRULHV VHH %UHDOH\ 5 DQG
0H\HUV63ULQFLSOHVRI&RUSRUDWH)LQDQFHVL[WKHGLWLRQ,UZLQ0F*UDZ+LOO%RVWRQ
3DUWQHUVKLSV9LFWRULD

'LVFRXQW5DWHV
GHWHUPLQHG E\ WKH H[SHFWHG UHWXUQV RQ FRPSDUDEOH DVVHWV DQG WKHUHIRUH
LQGHSHQGHQWRIWKHVRXUFHRIILQDQFLQJ 7KHFRVWRIFDSLWDOLVGHWHUPLQHGE\

LQYHVWRUV¶SUHIHUHQFHIRUFDVKQRZRYHUFDVKLQWKHIXWXUH±WKLVLVUHIOHFWHGLQ
WKHULVNIUHHUDWH

LQYHVWRUV¶SUHIHUHQFHIRUORZULVNLQYHVWPHQWVRYHUKLJKULVNLQYHVWPHQWV±WKLV
LVUHIOHFWHGLQWKHULVNSUHPLXPDWWDFKHGWRDQ\SDUWLFXODUSURMHFW
7KHIROORZLQJVHFWLRQVGHYHORSWKHVHFRQFHSWVIXUWKHU
7\SHVRIULVN
7KHILUVWFRQFHSWVWREHFRQVLGHUHGDUHWKHW\SHVRIULVNLQKHUHQWLQDOOSURMHFWVDQG
WKHLU HIIHFW RQ WKH FRVW RI FDSLWDO $ UDWLRQDO LQYHVWRU ZLOO QRW EHDU ULVN ZLWKRXW
FRPSHQVDWLRQLQWKHIRUPRIDKLJKHUUHWXUQ
7KHW\SHVRIULVNVLQKHUHQWLQDOOSURMHFWVDUH
L QRQV\VWHPDWLFULVN
LL V\VWHPDWLFULVN
1RQV\VWHPDWLFULVNVFDQXVXDOO\EHGLYHUVLILHGDZD\ E\LQYHVWLQJLQDEDODQFHG
SRUWIROLRRIDVVHWVEXWV\VWHPDWLFULVNVFDQQRWEHUHGXFHGLQWKLVZD\7KHUHIRUHD
KLJKHU FRVW RI FDSLWDO UHVXOWV IURP WKH QHHG WR FRPSHQVDWH LQYHVWRUV IRU EHDULQJ
V\VWHPDWLFULVNV
1RQV\VWHPDWLFULVN
1RQV\VWHPDWLFRUGLYHUVLILDEOHULVNVDUHWKRVHULVNVWKDWDUHDVVHWVSHFLILF$Q
LQYHVWRUPD\UHGXFHWKLVULVNE\KROGLQJDGLYHUVLILHGSRUWIROLRRIDVVHWVDV
GLVFXVVHGLQWKHIROORZLQJH[DPSOH
([DPSOH±1RQV\VWHPDWLFULVN
$Q H[DPSOH RI QRQV\VWHPDWLF ULVN LV WKH ULVN RI LQYHVWLQJ LQ D EXVLQHVV WKDW RQO\
VHOOVKHDWHUV6DOHVZRXOGEHKLJKHUIRUWKLVEXVLQHVVGXULQJWKHFROGWLPHVRIWKH
\HDU7KLVULVNFRXOGEHGLYHUVLILHGRUUHGXFHGE\DOVRLQYHVWLQJLQDEXVLQHVVWKDW
VHOOV DLUFRQGLWLRQHUV ZKHUH VDOHV ZRXOG EH KLJKHU GXULQJ WKH ZDUP WLPHV RI WKH
\HDU,QYHVWLQJLQWKHVHWZREXVLQHVVHVSURYLGHVPRUHFRQVLVWHQWVDOHVWKURXJKRXW
WKH\HDU
$V QRQV\VWHPDWLF ULVN FDQ EH UHGXFHG WKURXJK GLYHUVLILFDWLRQ LQYHVWRUV GR QRW
UHFHLYHDSUHPLXPIRUKROGLQJWKLVULVN7KHUHIRUHLQWKHRU\QRQV\VWHPDWLFULVNV
GRQRWKDYHDQ\HIIHFWRQWKHFRVWVRIFDSLWDO
)RUJRYHUQPHQWWKHVHµUHWXUQV¶PD\EHLQWKHIRUPRIFRPPXQLW\EHQHILWVDVZHOODVRUUDWKHUWKDQ
ILQDQFLDOUHWXUQV
7RPD[LPLVHWKHUHGXFWLRQRIQRQV\VWHPDWLFULVNVUHTXLUHVDQLQYHVWPHQWLQDSRUWIROLRRIDWOHDVW
WRDVVHWVHDFKZLWKGLIIHUHQWQRQV\VWHPDWLFULVNV
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
([DPSOH±1RQV\VWHPDWLFULVN
)RU LQGLYLGXDO SURMHFWV QRQV\VWHPDWLF ULVNV DUH WDNHQ LQWR DFFRXQW ZKHQ
IRUHFDVWLQJ WKH H[SHFWHG FRVWV DQG EHQHILWV LQ WKH IRUP RI FDVK IORZV IURP WKH
SURMHFW DQG DUH LQFOXGHG DV ULVN DGMXVWPHQWV WR WKH SURMHFW FDVK IORZV LQ
GHWHUPLQLQJWKH36& 6\VWHPDWLFULVN
6\VWHPDWLF ULVNV DUH WKRVH ULVNV WKDW FDQQRW EH UHGXFHG WKURXJK D GLYHUVLILHG
SRUWIROLRRIDVVHWV$QH[DPSOHRIWKLVULVNIROORZV
([DPSOH±6\VWHPDWLFULVN
$QLQYHVWPHQWLQDEXVLQHVVWKDWVHOOVERWKKHDWHUVDQGDLUFRQGLWLRQHUVLVOLNHO\WR
KDYHVDOHVULVLQJGXULQJHFRQRPLFERRPVDQGIDOOLQJGXULQJUHFHVVLRQV7KLVULVNLV
GHILQHG DV D V\VWHPDWLF ULVN DV DQ LQYHVWRU FDQQRW DYRLG WKLV ULVN WKURXJK D
GLYHUVLILHG SRUWIROLR 7KHUHIRUH WKH LQYHVWRU ZLOO VHHN D SUHPLXP ZKHUH WKH\ DUH
UHTXLUHG WR DVVXPH V\VWHPDWLF ULVNV 7KLV ULVN SUHPLXP LQFUHDVHV WKH LQYHVWRU¶V
FRVWRIFDSLWDO6SHFLILFH[DPSOHVRIV\VWHPDWLFULVNVWKDWPD\DIIHFW3DUWQHUVKLSV
9LFWRULDSURMHFWVDUH
L GHPDQGULVNUHODWLQJWRWKHOHYHORIJHQHUDOHFRQRPLFDFWLYLW\±WKLVVKRXOGEH
FRQWUDVWHG ZLWK GHPDQG ULVN UHODWLQJ WR WKH RSHUDWRU¶V RU D FRPSHWLWRU¶V
SHUIRUPDQFHZKLFKZRXOGEHDSURMHFWRUQRQV\VWHPDWLFULVN
LL XQH[SHFWHGLQIODWLRQ
LLL XQH[SHFWHGFKDQJHVLQLQWHUHVWUDWHVRUIRUHLJQH[FKDQJHUDWHV
LY EURDG PDUNHW ULVNV ± WKLV LV WKH ULVN WKDW WKH SURMHFW LV DIIHFWHG E\ WKH
VHFRQGDU\ LPSDFWV WKDW RFFXU LQ WKH EURDG PDUNHW HFRQRP\ )RU H[DPSOH D
VXSSOLHUEHFRPLQJLQVROYHQWDIIHFWVVHUYLFHSURYLVLRQIRUWKHSURMHFW
6XPPDU\RIULVNV
$VXPPDU\RIWKHWZRW\SHVRIULVNVLVVKRZQLQ7DEOH
3DUWQHUVKLSV9LFWRULD3XEOLF6HFWRU&RPSDUDWRU7HFKQLFDO1RWHS
3DUWQHUVKLSV9LFWRULD
7DEOH
'LVFRXQW5DWHV
6\VWHPDWLF DQG QRQV\VWHPDWLF ULVN DQG LPSOLFDWLRQV IRU
GLVFRXQWUDWH
7\SHRIULVN
'HVFULSWLRQ
,PSOLFDWLRQVIRUGLVFRXQWUDWH
1RQV\VWHPDWLFULVN
$OVRNQRZQDV
GLYHUVLILDEOHULVN
DVVHWVSHFLILFULVN
5LVNVWKDWDUHSURMHFWVSHFLILF
DQGFDQEHUHGXFHGE\KROGLQJ
DGLYHUVLILHGSRUWIROLRRIDVVHWV
3URYLGHGWKDWWKHFDVKIORZV
WREHEURXJKWWRSUHVHQWYDOXH
DUHWKHH[SHFWHGYDOXHVQR
LPSDFWRQGLVFRXQWUDWHDV
LQYHVWRUVFDQUHGXFHWKLVULVN
5LVNVWKDWDIIHFWDOODVVHWV
ZLWKLQDGLYHUVLILHGSRUWIROLRRI
DVVHWV
,QYHVWRUVDUHXQDEOHWRUHGXFH
V\VWHPDWLFULVNDQGWKHUHIRUH
UHTXLUHDSUHPLXPIRU
DFFHSWLQJWKLVULVNLH
LQFUHDVHLQWKHGLVFRXQWUDWH
6\VWHPDWLFULVN
$OVRNQRZQDV
QRQGLYHUVLILDEOHULVN
PDUNHWULVN
7LPHSUHIHUHQFHDQGWKHULVNIUHH
UDWH
$ GROODU WRGD\ LV ZRUWK PRUH WKDQ D GROODU LQ WKH IXWXUH 7KDWLVLQYHVWRUVKDYHD
SUHIHUHQFHIRUHDUO\UHYHQXHVDQGODWHFRVWV7KLVUHIOHFWVWKHRSSRUWXQLW\FRVWRI
FDSLWDO ± UHYHQXHV HDUQHG HDUOLHU FDQ HDUQ D UHWXUQ RU UHGXFH WKH FRVW RI
ERUURZLQJ
7KLVSUHIHUHQFHIRUPRQH\VRRQHUUDWKHUWKDQODWHULVFDOOHGµWLPHSUHIHUHQFH¶3XUH
WLPH SUHIHUHQFH LV PHDVXUHG E\ WKH UHWXUQV REVHUYHG LQ WKH PDUNHW RQ ULVNIUHH
DVVHWV 1RWH WKDW WKH WHUP ULVNIUHH UHODWHV RQO\ WR D ODFN RI V\VWHPDWLF ULVN
1RQV\VWHPDWLFRUDVVHWVSHFLILFULVNVDUHLQFOXGHGLQWKHIRUHFDVWRIWKHFDVKIORZV
IRUWKHDVVHW
8VLQJ WKH FRPPRQ VLPSOLI\LQJ DVVXPSWLRQ WKDW WKH &RPPRQZHDOWK *RYHUQPHQW
GHEW LV ULVNIUHH ZH FDQ VD\ WKDW DQ LQYHVWPHQW WKDW LV IUHH RI V\VWHPDWLF ULVNV
QHHGVWRHDUQDWOHDVWDVPXFKDVWKH\LHOGRQDJRYHUQPHQWERQGIRULWWRDWWUDFW
LQYHVWRUV7KLV\LHOGLVUHIHUUHGWRDVWKHULVNIUHHUDWH5I
7KHFRVWRIFDSLWDOIRUDQLQYHVWPHQWWKDWLVIUHHRIV\VWHPDWLFULVNVZLOOVLPSO\EH
WKH ULVNIUHH UDWH )RU H[DPSOH LI JRYHUQPHQW ZDV DVVHVVLQJ D SURMHFW WKDW LW
FRQVLGHUHG WR KDYH UHWXUQV DV FHUWDLQ DV WKH UHWXUQV RQ D &RPPRQZHDOWK
*RYHUQPHQW ERQG LW VKRXOG XVH WKH ULVNIUHH UDWH DV WKH GLVFRXQW UDWH IRU WKDW
SURMHFW,QSUDFWLFHPRVWSURMHFWVLQYROYHV\VWHPDWLFULVN:KHUHWKLVLVWKHFDVH
WKHFRVWRIFDSLWDOIRUWKHSURMHFWQHHGVWRLQFOXGHDULVNSUHPLXP
0DUNHWULVNSUHPLXP
7KHUHWXUQRQWKHZKROHPDUNHWSRUWIROLRKDVE\GHILQLWLRQDQDYHUDJHPDUNHWULVN
7KLVUHWXUQLVNQRZQDVWKHPDUNHWUHWXUQ5P7KHPDUNHWULVNSUHPLXP053LV
WKH H[WUD UHWXUQ ZKLFK LQYHVWRUV GHPDQG IRU KROGLQJ D ULVN\ DVVHW DQG ZKRVH
UHWXUQVPLUURUWKHPRYHPHQWLQUHWXUQVIURPWKHZKROHPDUNHW
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
7KHPDUNHWULVNSUHPLXPLVFDOFXODWHGE\WDNLQJWKHPDUNHWUHWXUQDQGVXEWUDFWLQJ
WKHULVNIUHHUDWH
0DUNHWULVNSUHPLXP 5P±5I
6\VWHPDWLFULVNRIDSURMHFW
7KH PDUNHW ULVN SUHPLXP XVHIXOO\ TXDQWLILHV WKH UHWXUQ UHTXLUHG IRU DFFHSWLQJ WKH
PDUNHW OHYHO RI V\VWHPDWLF ULVN +RZHYHU PDQ\ DVVHWV ZLOO QRW KDYH WKH VDPH
YDULDELOLW\WRPDUNHWPRYHPHQWVDVWKHPDUNHWDVDZKROH6RPHZLOOEHUHODWLYHO\
VWDEOH DQG ORZ ULVN 2WKHUV ZLOO EH YRODWLOH DQG ZLOO RQ DYHUDJH RYHUXQGHU VKRRW
PDUNHW PRYHPHQWV $V D UHVXOW LW LV QHFHVVDU\ WR GHWHUPLQH ZKDW H[SRVXUH WR
PDUNHW ULVN LV DVVRFLDWHG ZLWK GLIIHUHQW DVVHWV DQG ZKDW UHWXUQ LV UHTXLUHG WR
FRPSHQVDWHLQYHVWRUVIRUKROGLQJWKDWULVN
7KH PDUNHW ULVNLQHVV RI DQ\ LQGLYLGXDO DVVHW RU SURMHFW LV PHDVXUHG WKURXJK WKH
VHQVLWLYLW\ RI LWV UHWXUQV WR PDUNHW PRYHPHQWV 7KLV PHDVXUH LV GHILQHG DV WKH
DVVHWEHWD bDDQGFDOFXODWHGDVIROORZV
bD DP P
ZKHUH
bD
LVWKHEHWDIRUDVVHWµD¶
DP
P
LVWKHFRYDULDQFHRIUHWXUQVRIDVVHWµD¶FRPSDUHGWRPDUNHWUHWXUQV
LVWKHYDULDQFHRIPDUNHWUHWXUQV
7KHDVVHWEHWDSURYLGHVLQIRUPDWLRQRQWKHH[WHQWRIV\VWHPDWLFULVNVLQKHUHQWLQD
SURMHFW
$ ILQDQFLDO DVVHW ZKRVH SULFH PRYHPHQWV DUH H[DFWO\ FRUUHODWHG ZLWK WKH PDUNHW
KDVDQDVVHWEHWDRIRQH±WKLVZRXOGEHWUXHIRUH[DPSOHRIDVKDUHLQYHVWPHQW
IXQGWKDWLQFOXGHGDZHLJKWHGDYHUDJHRIDOOVKDUHVLQWKHPDUNHW$ILQDQFLDODVVHW
ZLWK DQ DVVHW EHWD EHORZ RQH LV OHVV UHVSRQVLYH WR PDUNHW PRYHPHQWV ZKLOH D
ILQDQFLDODVVHWZLWKDQDVVHWEHWDRIJUHDWHUWKDQRQHLVPRUHUHVSRQVLYH
7R VLPSOLI\ WKH GHWHUPLQDWLRQ RI WKH DVVHW EHWD IRU HDFK SURMHFW 6HFWLRQ SURYLGHV GHWDLOV RI V\VWHPDWLF ULVN EDQGV WKDW KDYH EHHQ GHWHUPLQHG E\ WKH
'HSDUWPHQW RI 7UHDVXU\ DQG )LQDQFH ZLWK H[DPSOHV RI VLPLODU V\VWHPDWLF ULVN
SURMHFWVLQHDFKEDQG
7KURXJKRXWWKLV7HFKQLFDO1RWHZHXVHEHWDWRUHIHUWRDQµDVVHWEHWD¶QRWDQµHTXLW\EHWD¶7KDWLV
LWLVDPHDVXUHRIWKHPDUNHWULVNRIDOOWKHFDVKIORZVRIDQDVVHWRUSURMHFWLUUHVSHFWLYHRIFDSLWDO
VWUXFWXUH
3DUWQHUVKLSV9LFWRULD
'LVFRXQW5DWHV
&DSLWDODVVHWSULFLQJPRGHO&$30
7KHSULQFLSOHVDERYHDUHFRPELQHGWRIRUPWKH&$30IRUPXOD
5D 5IbD5P±5I
ZKHUH
5D
LV WKH FRVW RI FDSLWDO RI RU UHTXLUHG UHWXUQ RQ DVVHWV ZKRVH
ULVNFODVVLVGHVLJQDWHGE\WKHDVVHWEHWD
5I
LVWKHULVNIUHHUDWHWKRXJKIRUWKHSXUSRVHVRIWKH&$30WKLV
LVWKHUDWHRQDQDVVHWWKDWLVIUHHIURPV\VWHPDWLFULVNVRQO\
bD
LV WKH DVVHW EHWD ZKLFK UHIOHFWV WKH GHJUHH WR ZKLFK DVVHW
UHWXUQV LH UHWXUQV RI D SDUWLFXODU SURMHFW DUH H[SHFWHG WR
YDU\ZLWKUHWXUQVRIWKHPDUNHWLHDZHOOGLYHUVLILHGSRUWIROLR
RIDVVHWVRUSURMHFWVRWKHUZLVHNQRZQDVWKHV\VWHPDWLFULVN
5P±5I
LV WKH PDUNHW ULVN SUHPLXP WKDW DQ LQYHVWRU ZRXOG H[SHFW WR
UHFHLYHEHIRUHLQYHVWLQJLQDQDVVHWH[DFWO\FRUUHODWHGZLWKWKH
PDUNHW
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
7KLV FKDSWHU GLVFXVVHV KRZ WKH &$30EDVHG IRUPXOD LV DSSOLHG WR GLVFRXQWHG
FDVKIORZDQDO\VLVIRUJRYHUQPHQWSURMHFWV
5LVNIUHHUDWH
)RU 3DUWQHUVKLSV 9LFWRULD SURMHFWV WKH ULVNIUHH UDWH 5I UHSUHVHQWV WKH GLVFRXQW
UDWH IRU DQ DVVHW ZLWK QR V\VWHPDWLF ULVNV $V GLVFXVVHG WKH QRQV\VWHPDWLF RU
DVVHW VSHFLILF ULVNV DUH LQFOXGHG LQ WKH IRUHFDVW FDVK IORZV IRU D SURMHFW 7KH
ULVNIUHH UDWH LV GHWHUPLQHG SHULRGLFDOO\ E\ WKH 'HSDUWPHQW RI 7UHDVXU\ DQG
)LQDQFH $W WKH WLPH WKLV 7HFKQLFDO 1RWH ZDV FRPSLOHG WKH ULVNIUHH UDWH ZDV
GHWHUPLQHG WR EH QRPLQDO DQG UHDO $V QRWHG WKHVH UDWHV PD\ EH
XSGDWHGDVQHFHVVDU\6HHZZZSDUWQHUVKLSVYLFJRYDXIRUXSGDWHV$µUHDO¶UDWH
GRHV QRW LQFOXGH DQ LQIODWLRQ DGMXVWPHQW DQG QHHGV WR EH FRQYHUWHG WR D QRPLQDO
UDWH WDNLQJ LQWR DFFRXQW WKH ODWHVW LQIODWLRQ IRUHFDVWV XVLQJ WKH )LVFKHU HTXDWLRQ
EHIRUH EHLQJ DSSOLHG WR QRPLQDO FDVK IORZV 7KH )LVFKHU HTXDWLRQ FRQYHUWV IURP
UHDOWRQRPLQDOGLVFRXQWUDWHVDVIROORZV
1 U[L±
ZKHUH
1 1RPLQDOUDWH
U 5HDOUDWH
L ,QIODWLRQUDWH
)RUH[DPSOHDVVXPLQJDUHDOULVNIUHHUDWHRIDQGDQLQIODWLRQUDWHRI
WKHQRPLQDOGLVFRXQWUDWHLVFDOFXODWHGDVIROORZV
1 [±
,QGHWHUPLQLQJWKHULVNIUHHUDWHWKHIROORZLQJSULQFLSOHVDUHWREHDSSOLHG
L ULVNIUHH UDWH WR EH EDVHG RQ WKH &RPPRQZHDOWK *RYHUQPHQW¶V ORQJWHUP
ERUURZLQJUDWH
5LVNIUHHUDWH $YHUDJHRIWKHWHQ\HDU&RPPRQZHDOWK%RQGUDWHIRUWKH
SUHYLRXVVL[PRQWKV
LL '7) PD\ UHYLHZ WKH ULVNIUHH UDWH IURP WLPH WR WLPH DQG FKDQJH WKH UDWH LI
LQWHUHVW UDWH PRYHPHQWV DUH FRQVLGHUHG WR KDYH D ORQJWHUP HIIHFW RQ WKH
GHWHUPLQDWLRQRIWKHULVNIUHHUDWH
3DUWQHUVKLSV9LFWRULD
'LVFRXQW5DWHV
0DUNHWULVNSUHPLXP
7KHUH DUH PDQ\ GLIIHUHQW ZD\V RI PHDVXULQJ PDUNHW UHWXUQV DQG WKHUH LV D
FRQVLGHUDEOHGHEDWHRYHUWKHFDOFXODWLRQRIWKHPDUNHWULVNSUHPLXP5P±5I
)RU WKH SXUSRVHV RI 3DUWQHUVKLSV 9LFWRULD SURMHFWV DW WKH GDWH RI WKLV 7HFKQLFDO
1RWH '7) ZLOO XVH WKH PDUNHW ULVN SUHPLXP RI GHWHUPLQHG E\ 3URIHVVRU
52IILFHU &RQVLVWHQW ZLWK WKH FDOFXODWLRQ RI WKH ULVNIUHH UDWH WKH PDUNHW ULVN
SUHPLXP GHWHUPLQHG E\ '7) LV D µUHDO¶ UDWH DQG GRHV QRW LQFOXGH DQ LQIODWLRQ
DGMXVWPHQW +RZHYHU VLQFH WKH DGMXVWPHQW IRU LQIODWLRQ LV JHQHUDOO\ PDGH ZLWKLQ
WKH ULVNIUHH UDWH WKH VDPH 053 RI FDQ EH XVHG IRU GHULYLQJ ERWK UHDO DQG
QRPLQDOGLVFRXQWUDWHV
7KLV UDWH ZLOO EH UHYLHZHG IURP WLPH WR WLPH E\ '7) DQG FKDQJHG LI FRQVLGHUHG
QHFHVVDU\
3URMHFWULVNSUHPLXP
7KHRU\VXJJHVWVWKDWDVHSDUDWHULVNSUHPLXPDQGRYHUDOOGLVFRXQWUDWHVKRXOGEH
GHYHORSHG IRU HDFK 3DUWQHUVKLSV 9LFWRULD SURMHFW ,Q SUDFWLFH IRU PRVW PDMRU
SURMHFWV WKLV LV OLNHO\ WR SURYH WLPHFRQVXPLQJ IRU OLWWOH JDLQ $Q LQFUHDVH LQ WKH
DFFXUDF\RIWKHGLVFRXQWUDWHFDOFXODWLRQZLOOEHRIPDUJLQDOEHQHILWXQOHVVWKHFDVK
IORZVFDQDOVREHIRUHFDVWWRWKHVDPHGHJUHHRIDFFXUDF\
7KH GLVFRXQW UDWH ZLOO EH DIIHFWHG E\ WKH VHFWRU LQ ZKLFK DQ LQYHVWPHQW LV EHLQJ
PDGH DQG WKH QDWXUH RI WKH ULVNV DVVRFLDWHG ZLWK WKH DVVHW 0DQ\ JRYHUQPHQW
SURMHFWV DUH LQ VLPLODU VHFWRUV DQG JRYHUQPHQW VHUYLFHV PD\ VKDUH VLPLODU ULVNV
)RUWKLVUHDVRQWKHEHQHILWVIURPSUHSDUDWLRQRIDSURMHFWVSHFLILFGLVFRXQWUDWHDUH
OLNHO\ WR EH ORZ 6XEVWDQWLDO UHVRXUFHV FRXOG JR LQWR DQDO\VLQJ VPDOO YDULDWLRQV LQ
WKHGLVFRXQWUDWHZLWKOLWWOHLPSURYHPHQWLQWKHDFFXUDF\RIWKH'&)DQDO\VLV
5LVNEDQGV
*LYHQ WKH PLQLPDO YDOXH REWDLQHG IURP FDOFXODWLQJ D SURMHFWVSHFLILF EHWD '7)
UHFRPPHQGVWKDWWKHPDMRULW\RISURMHFWVVKRXOGEHFDWHJRULVHGLQWRRQHRIWKUHH
EURDG µULVN EDQGV¶ (DFK ULVN EDQG KDV EHHQ DVVLJQHG D EHWD YDOXH RQ WKH EDVLV
WKDW JRYHUQPHQW DVVXPHV DOO WKH V\VWHPDWLF ULVNV LQKHUHQW LQ WKH SURMHFW¶V FDVK
IORZV7KHEHWDYDOXHLVNQRZQDVWKHDVVHWEHWDDQGWKHUHVXOWLQJGLVFRXQWUDWHLV
GHILQHG DV WKH SURMHFW UDWH 7DEOH RXWOLQHV WKH EURDG ULVN EDQGV +RZHYHU LW
VKRXOGEHQRWHGWKDWDGHWDLOHGXQGHUVWDQGLQJRIWKHV\VWHPDWLFULVNVRIWKHSURMHFW
QHHGVWREHXQGHUWDNHQLQRUGHUWRFRUUHFWO\FODVVLI\WKHSURMHFWLQWRRQHRIWKHULVN
EDQGV
,Q VRPH LQVWDQFHV D SURMHFWVSHFLILF GLVFRXQW UDWH PD\ EH MXVWLILHG DQG WKLV LV
GLVFXVVHGLQ6HFWLRQ
2IILFHU5µ7KH&RVWRI&DSLWDOIRUWKH6WDWHRI9LFWRULDD6\QRSVLV¶3DSHUFRPPLVVLRQHGE\WKH
'HSDUWPHQWRI7UHDVXU\DQG)LQDQFH0D\SDQGFRQILUPHGLQUHFHQWGLVFXVVLRQV
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
7DEOH
%URDGULVNEDQGVIRU3DUWQHUVKLSV9LFWRULDSURMHFWV
5LVN
EDQG
3URMHFWVHFWRUVDQGH[DPSOHSURMHFWV
$VVHWEHWD
5HDOULVN
SUHPLXP
9HU\ORZ
$FFRPPRGDWLRQDQGUHODWHGVHUYLFHV
$JHGFDUHKRXVLQJ
3XEOLFKRXVLQJ
+RVSLWDOIDFLOLWLHV
&RUUHFWLRQDOIDFLOLWLHV
/RZ
:DWHUWUDQVSRUWDQGHQHUJ\
:DVWHZDWHUWUHDWPHQWSODQWV
:DWHULQIUDVWUXFWXUH
+RVSLWDOFDUSDUNLQJ
+RVSLWDOHQHUJ\SODQWV
5RDGSURMHFWVQRQWROO
0HGLXP
7HOHFRPPXQLFDWLRQVPHGLDDQG
WHFKQRORJ\
(QWHUWDLQPHQW
7HOHFRPPXQLFDWLRQVDQG,7
.QRZOHGJHHFRQRP\
5HDO
GLVFRXQW
UDWH
URXQGHG
WRQHDUHVWZKROH
QXPEHU
URXQGHG
WRQHDUHVWZKROH
QXPEHU
5LVN SUHPLXP DVVXPHV D PDUNHW ULVN SUHPLXP RI 7KH UHDO ULVN SUHPLXP LV FDOFXODWHG DV
PDUNHWULVNSUHPLXP[DVVHWEHWD
7KH UHDO UDWH ZLOO EH XSGDWHG E\ '7) DW ZZZSDUWQHUVKLSVYLFJRYDX IURP WLPH WR WLPH DV
UHTXLUHG
7KHVHEHWDVPD\EHORZHUWKDQWKRVHREVHUYDEOHZLWKLQWKHJHQHUDOPDUNHW7KLV
UHIOHFWVWKHQDWXUHRISURMHFWVLQZKLFKJRYHUQPHQWLVLQYROYHG
7KHFDWHJRULVDWLRQVLQ7DEOHDUHSURYLGHGDVDJXLGHRQO\DQGLWLVXQGHUVWRRG
WKDW WKHUH LV QR W\SLFDO µWHOHFRPPXQLFDWLRQV PHGLD DQG WHFKQRORJ\¶ 3DUWQHUVKLSV
9LFWRULDSURMHFWIRULQVWDQFH(DFKSURMHFWVKRXOGEHDVVHVVHGRQDFDVHE\FDVH
EDVLV WR HQVXUH WKDW LW LV SODFHG LQ WKH DSSURSULDWH EDQG $OVR IRU ODUJH RU KLJK
V\VWHPDWLFULVNSURMHFWVDGGLWLRQDOFRQVLGHUDWLRQPD\EHZDUUDQWHGDVWRZKHWKHU
WKH EDQG UDWH LV WKH DSSURSULDWH GLVFRXQW UDWH 7KLV LV SDUWLFXODUO\ UHOHYDQW LQ
VLWXDWLRQV ZKHUH GHPDQG ULVN LV WR EH WUDQVIHUUHG VXFK DV WKH SURSRVHG
0LWFKDP)UDQNVWRQ)UHHZD\
$VDJHQHUDOUXOHLQVLWXDWLRQVZKHUHDSURMHFWKDVPXOWLSOHFRPSRQHQWVHDFKZLWK
D GLIIHUHQW SRWHQWLDO DVVHW EHWD WKH ULVN EDQG WKDW UHSUHVHQWV WKH PDMRULW\ RI WKH
SURMHFWVKRXOGEHXVHG+RZHYHU,IWKHGLIIHUHQWFRPSRQHQWVUHSUHVHQWVLJQLILFDQW
SRUWLRQVRIWKHSURMHFWVRPHDGMXVWPHQWPD\EHUHTXLUHGWRWKHDERYHULVNEDQGV
)RUH[DPSOHLQDSURMHFWZKHUHDKRVSLWDODQGFDUSDUNZDVWREHFRQVWUXFWHGLI
WKHULVNVRIWKHFDUSDUNDQGLWVUHODWLYHZHLJKWLQJZLWbKLQWKHSURMHFWDUHVLJQLILFDQW
DEHWDYDOXHLQEHWZHHQWKHYHU\ORZDQGORZULVNEDQGVPD\EHDSSURSULDWH$Q
DOWHUQDWLYH DSSURDFK ZKHUH WKH GLIIHUHQFHV DUH PDWHULDO LV WR VHSDUDWH WKH FDVK
IORZIRUWKHPXOWLSOHFRPSRQHQWVXVLQJGLIIHUHQWDVVHWEHWDVDVDSSURSULDWH
&DUHQHHGVWREHH[HUFLVHGLQWKHHYDOXDWLRQRIDVVHWEHWDVWRHQVXUHDSURMHFWLV
FDWHJRULVHGLQWKHFRUUHFWULVNEDQG$GHWDLOHGDQDO\VLVRIWKHSURMHFWLVUHTXLUHGWR
2IILFHU 5 µ7KH &RVW RI &DSLWDO IRU WKH 6WDWH RI 9LFWRULDD6\QRSVLV¶3DSHUFRPPLVVLRQHGE\WKH
'HSDUWPHQWRI7UHDVXU\DQG)LQDQFH0D\SDQGFRQILUPHGLQPRUHUHFHQWGLVFXVVLRQV
3DUWQHUVKLSV9LFWRULD
'LVFRXQW5DWHV
XQGHUVWDQGWKHV\VWHPDWLFULVNVLQKHUHQWLQWKHSURMHFW¶VFDVKIORZV$QH[DPSOHRI
KRZVLPLODUDVVHWVFDQEHFDWHJRULVHGLQGLIIHUHQWULVNEDQGVLVGLVFXVVHGEHORZ
([DPSOH+RVSLWDOSURMHFWV
7KLV H[DPSOH FRQFHUQV SURMHFWV RI WKH VDPH DVVHW W\SH D KRVSLWDO EXW ZLWK
GLIIHUHQWRXWSXWVSXUFKDVHGE\JRYHUQPHQW
$KRVSLWDOSURMHFWPLJKWILWDSSURSULDWHO\LQWRWKHSURSHUW\FDWHJRU\LIWKHHPSKDVLV
LV RQ SURYLGLQJ DFFRPPRGDWLRQ DQG IDFLOLW\ VHUYLFHV 2Q WKH RWKHU KDQG LI WKH
SURMHFWLQFOXGHGWKHSURYLVLRQRIKHDOWKVHUYLFHVLWVKRXOGEHFRQVLGHUHGDKHDOWK
VHFWRU SURMHFW 7KH KHDOWK VHFWRU PD\ KDYH D GLIIHUHQW PRVW OLNHO\ KLJKHU
V\VWHPDWLF ULVN WKDQ WKH µ$FFRPPRGDWLRQ DQG UHODWHG VHUYLFHV¶ VHFWRU 7KLV
H[DPSOH LV IRU LOOXVWUDWLRQ RQO\ 3URYLVLRQ RI FOLQLFDO KHDOWK VHUYLFHV LQ D SXEOLF
KRVSLWDOLVFRQVLGHUHGWREHDµFRUH¶VHUYLFHDQGZLOOQRWIRUPSDUWRIWKHVHUYLFHV
SURYLGHGSULYDWHO\LQD3DUWQHUVKLSV9LFWRULDSURMHFW
&DOFXODWLRQRIDSURMHFWVSHFLILFGLVFRXQWUDWH
7KH DSSURDFK RI DOORFDWLQJ HDFK SURMHFW LQWR ULVN EDQGV ZLOO ZRUN IRU PRVW
3DUWQHUVKLSV 9LFWRULD SURMHFWV +RZHYHU WKHUH DUH WLPHV ZKHQ D PRUH SUHFLVH
SURMHFWVSHFLILF DSSURDFK PD\ EH MXVWLILHG 7R MXVWLI\ D SURMHFWVSHFLILF GLVFRXQW
UDWHWKHSURMHFWVKRXOGPHHWDWOHDVWRQHRIWKHIROORZLQJFRQGLWLRQV
L WKHVL]HRISURMHFWLVLQH[FHVVRI13913&RIPLOOLRQ
LL WKHSURMHFWKDVXQLTXHRUXQXVXDOV\VWHPDWLFULVNVWKDWDUHQRWVLPLODUWRDQ\RI
WKHSURMHFWW\SHVLQWKHULVNEDQGV
:KHUHDSURMHFWVSHFLILFGLVFRXQWUDWHLVWREHGHYHORSHGWKHPHWKRGRORJ\VKRXOG
FRQFHQWUDWH RQ GHYHORSLQJ DQ HVWLPDWH RI WKH DVVHW EHWD IRU WKDW SURMHFW 7KLV
LGHDOO\ ZRXOG EH GHWHUPLQHG E\ REVHUYLQJ WKH DVVHW EHWDV RI WUDGHG FRPSDQLHV
ZLWKVLPLODUPDUNHWULVNFKDUDFWHULVWLFVWRWKRVHLQWKHSURMHFW7KHULVNIUHHUDWHDQG
WKH PDUNHW ULVN SUHPLXP XVHG VKRXOG EH WKH VDPH DV WKRVH GLVFXVVHG LQ WKLV
7HFKQLFDO1RWH
&RQVLVWHQF\EHWZHHQGLVFRXQW
UDWHVDQGFDVKIORZV
,Q XVLQJ WKH &$30 WR FDOFXODWH D GLVFRXQW UDWH IRU '&) DQDO\VLV WKH DSSURDFK
PXVWEHFRQVLVWHQWZLWKWKDWXVHGWRHVWLPDWHWKHSURMHFWFDVKIORZV.H\DUHDVLQ
ZKLFKLQFRQVLVWHQFLHVPD\DULVHDUH

WKHWUHDWPHQWRIWD[

WKHWUHDWPHQWRILQIODWLRQ
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
7UHDWPHQWRIWD[
7KHGLVFRXQWUDWHPD\EHGHYHORSHGRQDSUHWD[RUSRVWWD[EDVLV7KHFDVKIORZV
WRZKLFKWKDWGLVFRXQWUDWHLVDSSOLHGPXVWEHGHYHORSHGRQWKHVDPHEDVLV
7KH 36& 7HFKQLFDO 1RWH UHFRPPHQGV WKDW IRU JRYHUQPHQW EXGJHWVHFWRU
DJHQFLHV FDVK IORZV DUH FDOFXODWHG RQ D SUHWD[ EDVLV 7KHUHIRUH WKH GLVFRXQW
UDWHVKRXOGDOVREHDSUHWD[HVWLPDWH)RUJRYHUQPHQWERGLHVVXEMHFWWRFRPSDQ\
WD[RUFRPSDQ\WD[HTXLYDOHQWVXVHRIDSRVWWD[EDVLVPD\EHPRUHDSSURSULDWH
7UHDWPHQWRILQIODWLRQ
&RQVLVWHQW ZLWK 36& 7HFKQLFDO 1RWH 6HFWLRQV DQG WKH GLVFRXQW UDWH
VKRXOG EH HVWLPDWHG LQ QRPLQDO WHUPV WKDW LV LQFOXGLQJ LQIODWLRQ 7KHUHIRUH FDVK
IORZVVKRXOGDOVRLQFOXGHWKHHIIHFWRILQIODWLRQ
5HFRQFLOLDWLRQZLWKKLVWRULFDO
DSSURDFK
7KLV 7HFKQLFDO 1RWH VHHNV WR IXUWKHU UHILQH WKH GHWHUPLQDWLRQ RI GLVFRXQW UDWHV WR
EHXVHGLQ3DUWQHUVKLSV9LFWRULDSURMHFWV7KHXVHRIEDQGVUDWKHUWKDQDFRPPRQ
XQLIRUP GLVFRXQW UDWH IRU GHWHUPLQDWLRQ RI WKH 36& LV RQH UHILQHPHQW $QRWKHU LV
WKH XVH LQ VHOHFW FDVHV RI GLIIHUHQW GLVFRXQW UDWHV IRU ELG HYDOXDWLRQ IURP WKDW
XVHGLQGHWHUPLQLQJWKH36&IRUWKDWSURMHFW7KHSXUSRVHRIWKLVLVWRFDSWXUHWKH
H[WHQWRIV\VWHPDWLFULVNWUDQVIHUEHWZHHQJRYHUQPHQWDQGWKHSULYDWHSDUW\7KLV
UHILQHPHQWLVDGGUHVVHGLQ&KDSWHU
3DUWQHUVKLSV9LFWRULD
'LVFRXQW5DWHV
)ROORZLQJ WKH GLVFXVVLRQ LQ &KDSWHU LW LV UHFRPPHQGHG WKDW WKH GLVFRXQW UDWHV
XVHG WR FDOFXODWH WKH 36& DQG WR DVVHVV SULYDWH VHFWRU ELGV LV EDVHG RQ WKH
&$30
5D 5IbD5P±5I
$VRXWOLQHGLQ&KDSWHUV\VWHPDWLFULVNVLQKHUHQWLQWKHSURMHFWDUHPHDVXUHGE\
WKHDVVHWEHWDPXOWLSOLHGE\WKHPDUNHWULVNSUHPLXPbD 5P±5I1RQV\VWHPDWLF
RUSURMHFWULVNVDUHWDNHQLQWRDFFRXQWLQWKHH[SHFWHGFDVKIORZIRUHFDVWVIRUWKH
SURMHFW
*HQHUDODSSURDFK±WRDSSO\LQ
PRVWSURMHFWV
%LGV IURP SULYDWH SDUWLHV DUH DVVHVVHG E\ JRYHUQPHQW WR GHWHUPLQH ZKLFK RIIHUV
WKH EHVW YDOXH IRU JRYHUQPHQW %LGV DUH DOVR HYDOXDWHG DJDLQVW WKH 36& WR
GHWHUPLQHZKHWKHULWLVEHWWHUYDOXHIRUJRYHUQPHQWWR

FRQWUDFW ZLWK WKH SULYDWH VHFWRU DQG XVH WKH 3DUWQHUVKLSV 9LFWRULD GHOLYHU\
PHFKDQLVPRU

GHOLYHUWKHSURMHFWLWVHOIDVDFDSLWDOZRUNVSURMHFW
7KHGLVFRXQWUDWHPHWKRGRORJ\XVHGWRFDOFXODWHWKH36&PXVWEHFRQVLVWHQWZLWK
WKDW XVHG E\ JRYHUQPHQW WR DVVHVV ELGV :KHUH WKHVH PHWKRGRORJLHV DUH QRW
FRQVLVWHQW WKH '&) DQDO\VLV RI WKH 36& DQG SULYDWH VHFWRU ELGV FDQQRW EH
FRPSDUHG
7KH 36& LV EDVHG RQ JRYHUQPHQW¶V UHIHUHQFH SURMHFW ZKLFK DVVXPHV WKDW DOO
V\VWHPDWLFULVNVLQKHUHQWLQWKHSURMHFWDUHUHWDLQHGE\JRYHUQPHQW
,Q GHOLYHULQJ WKH SURMHFW XQGHU 3DUWQHUVKLSV 9LFWRULD LW LV OLNHO\ WKDW VRPH
V\VWHPDWLF ULVNV ZLOO EH WUDQVIHUUHG IURP JRYHUQPHQW WR WKH SULYDWH VHFWRU
7KHUHIRUH ZKHUH WKH SURMHFW LV GHOLYHUHG LQ FRQMXQFWLRQ ZLWK WKH SULYDWH VHFWRU
JRYHUQPHQW¶VFDVKIORZSD\PHQWVZLOOUHWDLQOHVVV\VWHPDWLFULVNWKDQLVFRQWDLQHG
LQWKH36&7KLVLVRIEHQHILWWRJRYHUQPHQWDOWKRXJKLWFRXOGEHH[SHFWHGWREH
UHIOHFWHGLQWKHFDVKIORZVVRXJKWE\ELGGHUV
,I WKH YDOXH RI WKLV EHQHILW WR JRYHUQPHQW ZHUH WR EH FDSWXUHG WKH SURSRUWLRQ RI
V\VWHPDWLFULVNWUDQVIHUUHGWRWKHSULYDWHVHFWRUZRXOGEHHVWLPDWHGDQGDGLIIHUHQW
GLVFRXQWUDWHFRQVHTXHQWO\GHWHUPLQHGWRDSSO\WRELGGHUV¶FDVKIORZV
+RZHYHU IRU PRVW 3DUWQHUVKLSV 9LFWRULD SURMHFWV FDWHJRULVHG LQ WKH YHU\ ORZ DQG
ORZV\VWHPDWLFULVNFDWHJRULHVVHH6HFWLRQWKLVWUDQVIHURIV\VWHPDWLFULVNLV
XQOLNHO\ WR EH PDWHULDO ,Q VXFK FDVHV WKH HVWLPDWLRQ RI WKH SURSRUWLRQ RI
V\VWHPDWLFULVNWUDQVIHUUHGXQGHUD3DUWQHUVKLSV9LFWRULDFRQWUDFWLVXQOLNHO\WREH
ZDUUDQWHG DQG LW LV UHFRPPHQGHG WKDW JRYHUQPHQW DSSOLHV D FRPPRQ GLVFRXQW
UDWHWRELGVDQGWKH36&IRUDVVHVVPHQWSXUSRVHV
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
$SSURDFKWRDSSO\ZKHUHPDWHULDO
V\VWHPDWLFULVNLVWUDQVIHUUHG
)RU SURMHFWV ZKHUH LW LV FRQVLGHUHG WKDW PDWHULDO V\VWHPDWLF ULVNV DUH WUDQVIHUUHG
XQGHU D 3DUWQHUVKLSV 9LFWRULD SURMHFW HVWLPDWLRQ RI DQ DGMXVWHG GLVFRXQW UDWH WR
DSSO\ WR ELGGHUV¶ FDVK IORZV GLIIHUHQW IURP WKDW XVHG LQ WKH 36& PD\ EH
ZDUUDQWHG
,Q VXFK FDVHV WKH PHWKRGRORJ\ XVHG WR GHWHUPLQH WKH DGMXVWHG GLVFRXQW UDWH WR
DSSO\ WR ELGV ZLOO YDU\ DFFRUGLQJ WR ZKHWKHU WKH SURMHFW¶V QHW FDVK IORZV IRU
JRYHUQPHQWDUHSRVLWLYHLHQHWFDVKLQIORZRUQHJDWLYHLHQHWFDVKRXWIORZ
3URMHFWVZLWKQHWFDVKLQIORZV
:KHUH WKH QHW FDVK IORZV WR JRYHUQPHQW DUH SRVLWLYH D FRQYHQWLRQDO XVH RI WKH
&$30 LV DSSURSULDWH LH WKH KLJKHU WKH V\VWHPDWLF ULVN LQKHUHQW LQ JRYHUQPHQW¶V
FDVKIORZVWKHKLJKHUWKHGLVFRXQWUDWHDSSOLHGWRWKRVHVSHFLILFFDVKIORZV
'LVFRXQWUDWHIRU36&
)RUDSURMHFWZLWKSRVLWLYHFDVKIORZVWKHGLVFRXQWUDWHXVHGWRFDOFXODWHWKH36&
LV EDVHG RQ WKH DVVXPSWLRQ WKDW JRYHUQPHQW UHWDLQV DOO WKH SURMHFW¶V V\VWHPDWLF
ULVNV7KHUHVXOWLQJEHWDFDOFXODWHGLQWKH&$30LVEDVHGRQWKHULVNEDQGVVKRZQ
LQ 6HFWLRQ DQG DV QRWHG LQ WKDW VHFWLRQ LV NQRZQ DV WKH DVVHW EHWD 7KH
UHVXOWLQJGLVFRXQWUDWH5DLVGHILQHGDVWKHSURMHFWUDWH
'LVFRXQWUDWHIRUDVVHVVLQJSULYDWHVHFWRUELGV
7KHGLVFRXQWUDWHXVHGWRDVVHVVSULYDWHVHFWRUELGVLQVXFKSURMHFWVLVFDOFXODWHG
ZLWK UHIHUHQFH WR WKH DOORFDWLRQ RI V\VWHPDWLF ULVNV EHWZHHQ JRYHUQPHQW DQG WKH
SULYDWHVHFWRU7KLVULVNDOORFDWLRQLVVHWRXWLQWKHSURSRVHGFRQWUDFWEHWZHHQWKH
WZR SDUWLHV DQG WKLV ZLOO EH UHIOHFWHG LQ WKH EHWD DGMXVWPHQW ,Q WKHRU\ GLIIHUHQW
EHWDVFRXOGEHHVWLPDWHGIRUGLIIHUHQWELGVLIWKHDPRXQWVRIV\VWHPDWLFULVNWUDQVIHU
ZHUH WR YDU\ EHWZHHQ ELGV ,Q SUDFWLFH VXFK D FRPSOLFDWLRQ LV XQOLNHO\ WR EH
ZDUUDQWHG
$V JRYHUQPHQW¶V FDVK IORZV ZLOO EH VXEMHFW WR OHVV V\VWHPDWLF ULVN WKDQ WKDW
HVWLPDWHG IRU WKH 36& WKH EHWD FDOFXODWHG IRU WKH FDVK IORZV ELG E\ WKH SULYDWH
VHFWRU ZLOO EH OHVV WKDQ WKH DVVHW EHWD $FFRUGLQJO\ WKH GLVFRXQW UDWH XVHG WR
DVVHVVWKHSULYDWHVHFWRUELGVZLOOEHOHVVWKDQWKHSURMHFWUDWH
,Q 6HFWLRQ IRXU VSHFLILF H[DPSOHV RI V\VWHPDWLF ULVNV WKDW PD\ DIIHFW
3DUWQHUVKLSV 9LFWRULD SURMHFWV ZHUH OLVWHG 7KH SURSRVHG FRQWUDFW IRU DQ\
3DUWQHUVKLSV 9LFWRULD SURMHFW ZRXOG QHHG WR EH H[DPLQHG WR HVWLPDWH WKH
V\VWHPDWLFULVNWUDQVIHU
7KHIROORZLQJJUDSK)LJXUHGHPRQVWUDWHVWKHFDOFXODWLRQRIGLVFRXQWUDWHVLQ
SURMHFWV ZKHUH WKH JRYHUQPHQW UHIHUHQFH SURMHFW ZRXOG H[SHULHQFH QHW FDVK
LQIORZV ,Q SUDFWLFH RQFH DQ HVWLPDWH KDV EHHQ PDGH RI WKH SURSRUWLRQ RI
V\VWHPDWLFULVNWUDQVIHUUHGHJóòôDOODGLVFRXQWUDWHFRXOGEHGHWHUPLQHG
IURP WKH JUDSK DQG DSSOLHG WR JRYHUQPHQW¶V QHW FDVK LQIORZV *XLGDQFH RQ
HVWLPDWLQJ WKH SURSRUWLRQ RI V\VWHPDWLFULVNWUDQVIHUUHGLVSURYLGHGLQ$SSHQGL[&
9LFWRULDQ&RXQW\&RXUWFDVHVWXG\
3DUWQHUVKLSV9LFWRULD
)LJXUH
'LVFRXQW5DWHV
'LVFRXQWUDWHFDOFXODWLRQ±QHWFDVKLQIORZWRJRYHUQPHQW
3URMHFWUDWH
'LVFRXQW
UDWH
5LVNIUHHUDWH
LHbD $OOULVNV
UHWDLQHG
6\VWHPDWLFULVN
WUDQVIHUWRSULYDWH
VHFWRU
3URMHFWVZLWKQHWFDVKRXWIORZV
$OOULVNV
WUDQVIHUUHG
,QPRVW3DUWQHUVKLSV9LFWRULDSURMHFWVJRYHUQPHQWFDVKIORZVZLOOEHQHJDWLYH)RU
WKHVHSURMHFWVWKHDERYHDSSURDFKWRGLVFRXQWLQJJRYHUQPHQW¶VFDVKIORZSURILOH
FDQQRWEHXVHG
%\XVLQJWKHVWDQGDUGPHWKRGRORJ\WRFDOFXODWHGLVFRXQWUDWHVIRUQHWFDVKRXWIORZ
SURMHFWV RWKHU WKLQJV HTXDO D PRUH ULVN\ QHW FDVK RXWIORZ ZRXOG EH DVVLJQHG D
KLJKHUGLVFRXQWUDWHUHVXOWLQJLQDORZHUQHWSUHVHQWFRVW13&7KLVZRXOGPDNH
WKHKLJKHUULVNSURMHFWDSSHDUSUHIHUDEOHWRDORZHUULVNSURMHFWZKHUHDVDUDWLRQDO
SDUW\ZRXOGSUHIHUWKHORZHUULVNSURMHFW5HIHUWR6HFWLRQIRUDQH[DPSOHRIWKH
LQFRUUHFWXVHRIGLVFRXQWUDWHVLQ'&)DQDO\VLV
,Q RUGHU WR RYHUFRPH WKLV LVVXH LQ JRYHUQPHQW QHW FDVK RXWIORZ SURMHFWV D
PRGLILHGXVHRI&$30LVSURSRVHG7KLVPRGLILHGDSSURDFKZLOOSURYLGHWKHFRUUHFW
UDQNLQJV IRU GLIIHUHQW FDVK IORZ DOWHUQDWLYHV IDFHG E\ JRYHUQPHQW +RZHYHU WKH
DFWXDODEVROXWH13&VGHULYHGZLOOKDYHQRGLUHFWPHDQLQJ
7KLVDSSURDFKKDVEHHQFKRVHQEHFDXVHRILWVUHODWLYHVLPSOLFLW\WRJHWKHUZLWKLWV
DELOLW\WR\LHOGDSSURSULDWHUDQNLQJVRIWKH36&DQGELGV
'LVFRXQWUDWHIRU36&
,QWKHFRQWH[WRIWKHSUHYLRXVGLVFXVVLRQDQGRQO\IRUWKHSXUSRVHVRIHVWDEOLVKLQJ
D36&EHQFKPDUNWRFRPSDUHSULYDWHVHFWRUELGVDQGWRHQVXUHDUDWLRQDOUDQNLQJ
RI QHW FDVK RXWIORZ DOWHUQDWLYHV WKH ULVNIUHH UDWH VKRXOG EH XVHG WR GLVFRXQW
JRYHUQPHQW¶V36&FDVKIORZV
7KH XVH RI WKH ULVNIUHH UDWH DV D GLVFRXQW UDWH LQ WKLV FRQWH[W LV YDOLG IRU
GHWHUPLQLQJ D EHQFKPDUN WKH 36& IRU ZKLFK SULYDWH VHFWRU SURSRVDOV FDQ EH
WHVWHGWRHQVXUHJRYHUQPHQWLVREWDLQLQJWKHEHVWYDOXHIRUPRQH\LQGHOLYHULQJWKH
SURMHFW
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
'LVFRXQWUDWHIRUDVVHVVLQJSULYDWHVHFWRUELGV
,QFRPSDULQJWKHILQDQFLDOFRVWRIDSULYDWHVHFWRUELGZLWKWKH36&WKHWUDQVIHURI
PRUH V\VWHPDWLF ULVN WR WKH SULYDWH VHFWRU UHSUHVHQWV D EHWWHU RXWFRPH IRU
JRYHUQPHQW RWKHU WKLQJV HTXDO )RU WKH '&) DQDO\VLV D KLJKHU EHWD DQG
WKHUHIRUH D KLJKHU GLVFRXQW UDWH VKRXOG DSSO\ WR JRYHUQPHQW¶V QHW FDVK RXWIORZV
LH WKH SD\PHQWV WR EH PDGH WR D ELGGHU ZKHUH JUHDWHU V\VWHPDWLF ULVN LV
WUDQVIHUUHG WR WKH SULYDWH VHFWRU 7KH KLJKHU GLVFRXQW UDWH UHVXOWV LQ D ORZHU 13&
LHDKLJKHU139WRJRYHUQPHQW
&RQYHUVHO\ORZHUULVNDFFHSWHGE\WKHSULYDWHVHFWRUSURYLGHULVDOHVVSUHIHUDEOH
RXWFRPHIRUJRYHUQPHQWRWKHUWKLQJVHTXDODQGWKHUHIRUHWKHEHWDDSSOLFDEOHWR
WKHLU ELG ZLOO EH ORZHU UHVXOWLQJ LQ D ORZHU GLVFRXQW UDWH 7KLV LV GXH WR WKH ULVN
EHLQJ ERUQH E\ WKH SULYDWH VHFWRU UHSUHVHQWLQJ D ORZHU SHUFHQWDJH RI WKH WRWDO
V\VWHPDWLF ULVN RU DVVHW EHWD 7KH ORZHU GLVFRXQW UDWH UHVXOWV LQ D KLJKHU 13&
LHORZHU139WRJRYHUQPHQW
)LJXUH GHPRQVWUDWHV WKH FDOFXODWLRQ RI GLVFRXQW UDWHV XVHG WR DVVHVV SULYDWH
VHFWRUELGVIRUSURMHFWVZLWKQHWFDVKRXWIORZVWRJRYHUQPHQW$JDLQWKHGLVFRXQW
UDWH FRXOG EH GHWHUPLQHG IURP WKH JUDSK DQG DSSOLHG WR JRYHUQPHQW¶V QHW FDVK
RXWIORZV
)LJXUH
'LVFRXQWUDWHFDOFXODWLRQ±QHWFDVKRXWIORZVWRJRYHUQPHQW
3URMHFWUDWH
'LVFRXQW
UDWH
5LVNIUHHUDWH
LHb D 6\VWHPDWLF
ULVNWUDQVIHU
WRSULYDWHVHFWRU
$OOULVNV
UHWDLQHG
$OOULVNV
WUDQVIHUUHG
3DUWQHUVKLSV9LFWRULD
'LVFRXQW5DWHV
6XPPDU\RIGLVFRXQWUDWHVIRUWKH
36&DQGELGV
)RUPRVWSURMHFWVJRYHUQPHQWZLOOXVHWKHVDPHGLVFRXQWUDWHWKHSURMHFWUDWHIRU
ERWK WKH 36& DQG IRU DVVHVVLQJ ELGV 7KLV GLVFRXQW UDWH ZLOO JHQHUDOO\ EH
GHWHUPLQHGE\ZKLFKFDWHJRU\±YHU\ORZORZRUPHGLXP±PRVWVXLWVWKHSURMHFW
)RUSURMHFWVZKHUHPDWHULDOV\VWHPDWLFULVNZRXOGEHWUDQVIHUUHGWRELGGHUVXQGHU
WKH FRQWUDFW XVH RI D GLIIHUHQW GLVFRXQW UDWH WR DSSO\ WR ELG FDVK IORZV PD\ EH
ZDUUDQWHG7DEOHVXPPDULVHVWKHUDQJHRIFDVHVWKDWFRXOGDSSO\LQWKLVHYHQW
7DEOH
6XPPDU\RIPHWKRGRORJLHVIRUGHWHUPLQLQJGLVFRXQWUDWHVIRU
3DUWQHUVKLSV9LFWRULDSURMHFWV
&ULWHULD
*HQHUDOUXOHV
6SHFLDOUXOHV
$SSOLFDWLRQ
*HQHUDOUXOHVWREH
DSSOLHGLQWKHPDMRULW\RI
SURMHFWV
3URMHFWV!P13913&
RUZKHUHSURMHFWKDVXQLTXH
RUXQXVXDOV\VWHPDWLFULVN
SURILOH
&DVKIORZSURILOH
$SSOLFDEOHWRSRVLWLYH
DQGQHJDWLYHFDVKIORZ
SURMHFWV
'LIIHUHQWPHWKRGVIRUSRVLWLYH
DQGQHJDWLYHFDVKIORZ
SURMHFWV
3URMHFWUDWH
3URMHFWUDWH
3URMHFWUDWH
3URMHFWUDWH
3URMHFWUDWH
3URMHFWUDWH
5LVNIUHHUDWH
!5LVNIUHHUDWH
'LVFRXQWUDWH±1HWFDVKLQIORZSURMHFWV
36&
%LG
'LVFRXQWUDWH±1HWFDVKRXWIORZSURMHFWV
36&
%LG
0RUHGHWDLOHGFRYHUDJHRIWKHPDWHULDOLQWKLVFKDSWHULVSURYLGHGLQ$SSHQGL[%
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
&KDSWHU LGHQWLILHG ZKHQ '&) DQDO\VLV LV XVHG WR DVVLVW LQ GHFLVLRQPDNLQJ IRU
3DUWQHUVKLSV9LFWRULDSURMHFWV,QVXPPDU\WKHVHSURFHVVHVDUH
L LQYHVWPHQW GHFLVLRQ ± XQGHUWDNLQJ FRVWEHQHILW DQDO\VLV WR GHWHUPLQH
ZKHWKHUWKHSURMHFWVKRXOGSURFHHG
LL 3XEOLF 6HFWRU &RPSDUDWRU 36& ± GHWHUPLQLQJ WKH 36& WR EH XVHG DV D
EHQFKPDUNLQDVVHVVLQJSULYDWHVHFWRUELGVIRUWKHSURMHFW
LLL ELGHYDOXDWLRQ±DVVHVVLQJSULYDWHVHFWRUELGVWRFRPSDUHDJDLQVWWKH36&
7KLV7HFKQLFDO1RWHKDVRQO\IRFXVHGRQWKHFDOFXODWLRQDQGXVHRIGLVFRXQWUDWHV
LQ GHWHUPLQLQJ WKH 36& DQG IRU ELG HYDOXDWLRQ)RUFRPSOHWHQHVVWKHLQYHVWPHQW
GHFLVLRQSURFHVVLVGLVFXVVHGEULHIO\EHORZ
,QYHVWPHQWGHFLVLRQ
$WWKHLQYHVWPHQWGHFLVLRQVWDJHRIDSURMHFWWKHDLPLVWRDVFHUWDLQEURDGO\WKH
H[FHVV RI H[SHFWHG EHQHILWV RYHU FRVWV IURP LQYHVWLQJ UHVRXUFHV LQ D VSHFLILF
SURMHFW FRQILJXUDWLRQ 7KH VFRSH RI WKH SURMHFW LQFOXGHV WKRVH FRPSRQHQWV WKDW
PD\EHGHOLYHUHGE\SULYDWHSDUWLHVXQGHU3DUWQHUVKLSV9LFWRULDDQGQHZDFWLYLWLHV
WKDW ZLOO EH GHOLYHUHG GLUHFWO\E\JRYHUQPHQW'LIIHUHQWSURMHFWGLVFRXQWUDWHVPD\
EH DSSURSULDWH DW WKH LQYHVWPHQW GHFLVLRQ VWDJH DQG WKH VWDJH RI DVVHVVLQJ
ZKHWKHUD3DUWQHUVKLSV9LFWRULDGHOLYHU\PHFKDQLVPRIIHUVEHWWHUYDOXHIRUPRQH\
IRUJRYHUQPHQWWKDQGLUHFWGHOLYHU\
7KHGLVFRXQWUDWHIRUWKHLQYHVWPHQWGHFLVLRQFRXOGEHEDVHGGLUHFWO\RQWKHDVVHW
EHWD DV GLVFXVVHG SUHYLRXVO\ 7KLV DSSURDFK LQYROYHV VLPLODU DVVXPSWLRQV
UHJDUGLQJWKHUREXVWQHVVRIWKHWHFKQLTXHWKHDYDLODELOLW\RIUHOLDEOHGDWDHWF7KH
&$30PRGHOWDNHVDORQJWHUPYLHZRIWKHSXUHWLPHYDOXHRIPRQH\WKHULVNIUHH
UDWHDQGDGGVDPDUJLQIRUWKHV\VWHPDWLFULVNVLQKHUHQWLQWKHSDUWLFXODUPRGHORI
WKHSURMHFWXQGHUH[DPLQDWLRQ6WULFWO\WKHSURMHFWVSHFLILFPDUJLQLVGHULYHGIURP
WKH PXOWLSOH RI WKH EHWD IRU WKH DVVHW FODVVHV LQ ZKLFK LQYHVWPHQW LV SURSRVHG
PXOWLSOLHGE\DVWDQGDUGPDUNHWULVNSUHPLXP
$OWHUQDWLYHO\ WKH GLVFRXQW UDWH PD\ EH EDVHG RQ D ZHLJKWHG DYHUDJH FRVW RI
FDSLWDO :$&& 7KH YDOLGLW\ RI WKLV DSSURDFK GHSHQGV RQ PDWWHUV VXFK DV WKH
DVVXPHG FDSLWDO VWUXFWXUH DQG WKH VL]H RI WKH LQFUHDVH LQ IXQGV LQYHVWHG DQG
KHQFHWKHDSSOLFDELOLW\RIDYHUDJHFDSLWDOFRVWVLQPDUJLQDOVLWXDWLRQV7KH:$&&
DSSURDFK JHQHUDOO\ UHTXLUHV XVH RI WKH &$30 DSSURDFK WR HVWLPDWH UHTXLUHG
UHWXUQVRQWKHHTXLW\FRPSRQHQW
:KLOH WKHRUHWLFDOO\ HDFK DVVHW FODVV KDV D VSHFLILF GLVFRXQW UDWH WKH FRVW RI
GHULYLQJ WKHVH UDWHV KDV WR EH WUDGHGRII DJDLQVW WKH VL]H RI DQ\ HUURUV OLNHO\ WR
UHVXOWIURPXVLQJGLVFRXQWUDWHVWKDWDUHOHVVDFFXUDWHEXWEURDGO\DSSOLFDEOHDQG
UHDGLO\DYDLODEOH7KHUHOLDELOLW\RIWKHFDVKIORZHVWLPDWHVWREHGLVFRXQWHGVKRXOG
DOVRLQIRUPWKHOHYHORIDFFXUDF\RIWKHGLVFRXQWUDWHIRUWKHSURMHFW
7KHKRVSLWDOSURMHFWVH[DPSOH6HFWLRQLQGLFDWHVKRZWKHVFRSHRIDSURMHFW
DQGWKHEHWDPD\GLIIHUDWWKHLQYHVWPHQWGHFLVLRQOHYHOIURPWKRVHLQWKH36&
3DUWQHUVKLSV9LFWRULD
'LVFRXQW5DWHV
7KLV FKDSWHU LQFOXGHV FRPPRQ TXHVWLRQV UHJDUGLQJ WKH GHWHUPLQDWLRQ RI GLVFRXQW
UDWHVDQGWKHLUXVHLQFDOFXODWLQJWKH36&DQGDVVHVVLQJSULYDWHVHFWRUELGV
'RHVJRYHUQPHQWKDYHDORZFRVW
RIFDSLWDO"
,WLVVRPHWLPHVDUJXHGWKDWJRYHUQPHQWIDFHVDORZFRVWRIGHEWDVVKRZQE\WKH
UDWH RI LQWHUHVW RQ JRYHUQPHQW VHFXULWLHV FRPSDUHG ZLWK WKH UDWH RQ FRUSRUDWH
ERQGV 7KLV PLJKW LPSO\ WKDW WKH FRVW RI FDSLWDO IRU JRYHUQPHQW VKRXOG EH ORZHU
WKDQIRUWKHSULYDWHVHFWRU
7KHUHDVRQJRYHUQPHQW¶VFRVWRIERUURZLQJLVORZLVWKDWJRYHUQPHQWFDQXVHLWV
WD[LQJ SRZHUV WR UHSD\ ORDQV %HFDXVH RI WKHVH WD[LQJ SRZHUV OHQGHUV WR
JRYHUQPHQWFRQVLGHUWKDWLWLVXQOLNHO\WRGHIDXOWOHDGLQJWRORZHULQWHUHVWUDWHVRQ
ERUURZLQJV+RZHYHUZKHQJRYHUQPHQWGHFLGHVZKHWKHUWRLQYHVWLQDSURMHFWLW
VKRXOG ORRN DW WKH ULVNLQHVV RI WKDW SURMHFW DQG GHPDQG D UHWXUQ FRPPHQVXUDWH
ZLWKWKHULVNLWLVWDNLQJ)XUWKHUDVGLVFXVVHGLQ6HFWLRQEHORZWKHGLVFRXQW
UDWHVKRXOGUHIOHFWWKHULVNRIWKHSURMHFWQRWJRYHUQPHQW¶VERUURZLQJUDWH
,IWKLVZDVQRWWKHFDVHWKHORJLFDOFRQVHTXHQFHZRXOGEHWKDWJRYHUQPHQWZRXOG
ILQDQFH HYHU\WKLQJ DQG UHSODFH FRPPHUFLDO VRXUFHV RI ILQDQFH 6LQFH LW LV
JHQHUDOO\DJUHHGWKDWWKLVZRXOGQRWEHDGHVLUDEOHRXWFRPHLWLVFOHDUWKDWLWLVWKH
H[SHFWHGUHWXUQVRIWKHSURMHFWDQGWKHULVNVDVVRFLDWHGZLWKWKHPUDWKHUWKDQWKH
FRVWV RI GHEW IRU SXEOLF RU SULYDWH ILQDQFLHUV ZKLFK GHWHUPLQH WKH FRVW RI FDSLWDO
)XUWKHULIJRYHUQPHQWZDVWRILQDQFHDOOSURMHFWVWKHODUJHLQFUHDVHLQSXEOLFGHEW
ZRXOGFUHDWHDFRUUHVSRQGLQJLQFUHDVHLQWKHFRVWRISXEOLFERUURZLQJ
6KRXOGJRYHUQPHQWXVHDVLQJOH
GLVFRXQWUDWH"
$IXUWKHUFRPPRQDUJXPHQWLVWKDWJRYHUQPHQWVKRXOGXVHDVLQJOHGLVFRXQWUDWH
7KH IDFW WKDW JRYHUQPHQW ERUURZV DW D VLQJOH UDWH LV VRPHWLPHV XVHG WR VXSSRUW
WKLVYLHZ$OWHUQDWLYHO\WKLVYLHZPLJKWEHDGYDQFHGDVVLPSOHURUVRPHKRZPRUH
HIILFLHQWEHFDXVHDOOSURMHFWVDUHWUHDWHGWKHVDPH
7KH IODZ LQ WKLV DUJXPHQW LV WKH VDPH DV WKH IODZ LQ WKH DUJXPHQW WKDW
JRYHUQPHQW¶VFRVWRIFDSLWDOLVDOZD\VORZ$SURMHFW¶VFRVWRIFDSLWDOLVQRWVHWE\
WKH FRVW RI ERUURZLQJ LW LV WKH FRVW RI EHDULQJ WKH PDUNHW ULVN RI D SURMHFW 6LQFH
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
LQGLYLGXDOSURMHFWVYDU\LQWKHLUULVNLQHVVWKH\YDU\LQWKHLUFRVWRIFDSLWDO7KLVLVVR
ZKHWKHUWKHSURMHFWLVXQGHUWDNHQE\WKHSXEOLFRUWKHSULYDWHVHFWRU 7KH YDULDWLRQ RI ULVN H[WHQGV WR WKH DOORFDWLRQ RI ULVN EHWZHHQ JRYHUQPHQW DQG
HDFKSULYDWHVHFWRUELG
,W IROORZV WKDW JRYHUQPHQW VKRXOG DSSO\ GLIIHUHQW GLVFRXQW UDWHV WR SURMHFWV ZLWK
GLIIHUHQW OHYHOV RI ULVN ,I JRYHUQPHQW DSSOLHG DQ DYHUDJH GLVFRXQW UDWH DFURVV DOO
SURMHFWVLWZRXOGDGYDQWDJHULVN\SURMHFWVE\GHPDQGLQJDUHWXUQORZHUWKDQWKHLU
ULVN ZDUUDQWHG DQG GLVDGYDQWDJH ORZ ULVN SURMHFWV E\ GHPDQGLQJ H[FHVVLYH
UHWXUQVIURPWKHP7KHUHVXOWZRXOGEHWKDWJRYHUQPHQWZRXOGWHQGWRRYHULQYHVW
LQULVN\SURMHFWVDQGXQGHULQYHVWLQORZULVNSURMHFWV
6XSSRVH JRYHUQPHQW XVHV D VLQJOH GLVFRXQW UDWH ZKHQ FRQVLGHULQJ WKH FDVH IRU
SXEOLF RU SULYDWH ILQDQFH ZKLOH WKH SULYDWH VHFWRU XVHV SURMHFWVSHFLILF FRVWV RI
FDSLWDO*RYHUQPHQWZLOOWHQGWRILQDQFHSURMHFWVZKHUHLWVGLVFRXQWUDWHDSSHDUVWR
EH ORZHU WKDQ WKH SULYDWH VHFWRU 7KH UHVXOW ZLOO EH WKDW JRYHUQPHQW ZLOO WHQG WR
ILQDQFHKLJKULVNSURMHFWVOHDYLQJORZULVNSURMHFWVWRWKHSULYDWHVHFWRU
,WLVWKLVUHDVRQLQJWKDWKDVUHVXOWHGLQ'7)SXEOLVKLQJWKLV7HFKQLFDO1RWHWRUHILQH
WKHXVHRIGLVFRXQWUDWHVLQFDOFXODWLQJWKH36&DQGDVVHVVLQJSULYDWHVHFWRUELGV
:K\GRHVWKHGLVFRXQWUDWH
PHWKRGRORJ\FKDQJHIRUSURMHFWV
ZLWKQHWFDVKRXWIORZV"
:KHUHDSURMHFWKDVQHWFDVKLQIORZVDKLJKHUGLVFRXQWUDWHUHVXOWVLQDORZHU139
WRJRYHUQPHQWZKHQXQGHUWDNLQJ'&)DQDO\VLV)RUSURMHFWVZLWKQHWFDVKRXWIORZV
WKLVUHODWLRQVKLSLVUHYHUVHGDVDKLJKHUGLVFRXQWUDWHUHVXOWVLQDORZHU13&
$FKDQJHLQWKHPHWKRGRORJ\XVHGWRFDOFXODWHWKHGLVFRXQWUDWHIRUSURMHFWVZLWK
QHWFDVKRXWIORZVLVUHTXLUHGWRHQVXUHDQDSSURSULDWHRXWFRPHIURP'&)DQDO\VLV
RI WKH UHODWLYH YDOXH RI WKH 36& FRPSDUHG ZLWK WKH SULYDWH VHFWRU ELGV 7KLV FDQ
EHVWEHH[SODLQHGE\WKHH[DPSOHEHORZ
([DPSOH ± ,QFRUUHFW FDOFXODWLRQ RI GLVFRXQW UDWHV IRU SURMHFW ZLWK QHW FDVK
RXWIORZVIRUJRYHUQPHQW
&RQVLGHU D SURMHFW ZLWK WZR GLIIHUHQW SULYDWH VHFWRU ELGV %LGGHUV $ DQG % %RWK
ELGV UHTXHVW JRYHUQPHQW WR PDNH WKH VDPH QHW FDVK RXWIORZV WKRXJK HDFK ELG
WUDQVIHUVDGLIIHUHQWDPRXQWRIV\VWHPDWLFULVNWRWKHSULYDWHVHFWRU
7KH SURSRVHG FDVK IORZV IRU %LGGHU $ KDYH PRUH V\VWHPDWLF ULVNV WUDQVIHUUHG WR
WKH SULYDWH VHFWRU WKDQ IRU %LGGHU % 7KHUHIRUH JRYHUQPHQW¶V FDVK IORZV LQ
3URMHFW$DUHVXEMHFWWROHVVV\VWHPDWLFULVNEHLQJUHWDLQHGE\JRYHUQPHQW
,I WKH FDOFXODWLRQ RI EHWDV DQG WKHUHIRUH GLVFRXQW UDWHV ZDV EDVHG RQ WKH
PHWKRGRORJ\ XVHG IRU QHW FDVK LQIORZ SURMHFWV WKHQ WKH FDVK IORZV IRU %LGGHU $
)RUDQH[SODQDWLRQRIZK\FRUSRUDWLRQVVKRXOGXVHSURMHFWVSHFLILFFRVWVRIFDSLWDOUDWKHUWKDQDQ
DYHUDJH FRVW IRU DOO SURMHFWV VHH %UHDOH\ 5 DQG 0H\HUV 6 3ULQFLSOHV RI &RUSRUDWH )LQDQFH
RSFLW&KDSWHU7KHVDPHDUJXPHQWDSSOLHVWRJRYHUQPHQW
3DUWQHUVKLSV9LFWRULD
'LVFRXQW5DWHV
([DPSOH ± ,QFRUUHFW FDOFXODWLRQ RI GLVFRXQW UDWHV IRU SURMHFW ZLWK QHW FDVK
RXWIORZVIRUJRYHUQPHQW
ZLWK ORZHU V\VWHPDWLF ULVNV UHWDLQHG E\ JRYHUQPHQW ZRXOG EH DVVLJQHG D ORZHU
EHWD 7KH ORZHU EHWD ZRXOG UHVXOW LQ D ORZHU GLVFRXQW UDWH IRU %LGGHU $ DQG
WKHUHIRUHDJUHDWHU13&WRJRYHUQPHQW
7DEOHVDQGGHPRQVWUDWHWKLVWKHRU\
7DEOH
([DPSOH3DUWQHUVKLSV9LFWRULDSURMHFWVFDVKRXWIORZVE\\HDU
DQGULVNOHYHOV
3URMHFWFDVKRXWIORZVP
7RWDO
<HDU
<HDU
<HDU
<HDU
<HDU
%LGGHU$
+LJKV\VWHPDWLFULVNWUDQVIHUUHGWRSULYDWHVHFWRU
/RZV\VWHPDWLFULVNERUQHE\JRYHUQPHQW
%LGGHU%
/RZV\VWHPDWLFULVNWUDQVIHUUHGWRSULYDWHVHFWRU
+LJKV\VWHPDWLFULVNERUQHE\JRYHUQPHQW
7DEOH
([DPSOH3DUWQHUVKLSV9LFWRULDSURMHFWV±ULVNOHYHOVGLVFRXQW
UDWHVDQGQHWSUHVHQWFRVWV13&
3OHDVH QRWH 7KLV LV DQ H[DPSOH RI WKH LQFRUUHFW GHWHUPLQDWLRQ RI GLVFRXQW UDWHV IRU SURMHFWV ZLWK QHW
FDVKRXWIORZV
3URMHFW
%HWD
'LVFRXQW
UDWH
13&
P
%LGGHU$
+LJKV\VWHPDWLFULVNWUDQVIHUUHGWRSULYDWHVHFWRU
/RZV\VWHPDWLFULVNERUQHE\JRYHUQPHQW
%LGGHU%
/RZV\VWHPDWLFULVNWUDQVIHUUHGWRSULYDWHVHFWRU
+LJKV\VWHPDWLFULVNERUQHE\JRYHUQPHQW
1RWH
'LVFRXQW UDWH DVVXPHV ULVNIUHH UDWH RI PDUNHW ULVN SUHPLXP RI URXQGHG WR
QHDUHVWZKROHQXPEHU
%DVHGRQ7DEOH%LG%KDVDORZHUQHWSUHVHQWFRVWWRJRYHUQPHQWWKDQ%LG$
DQG VR %LG% ZRXOG EH WKH SUHIHUUHG SURMHFW SURYLGHU 7KLV FRQFOXVLRQ LV FOHDUO\
LQFRUUHFWRWKHUWKLQJVHTXDODVJRYHUQPHQWLVVXEMHFWWRJUHDWHUV\VWHPDWLFULVN
LQ%LG%WKDQ%LG$
7KHULVNIUHHUDWHZLOOEHUHYLHZHGIURPWLPHWRWLPHE\'7)DQGDUHYLVHGUDWHZLOOEHSXEOLVKHGYLD
ZZZSDUWQHUVKLSVYLFJRYDXZKHQFRQVLGHUHGQHFHVVDU\
2IILFHU5µ7KH&RVWRI&DSLWDOIRUWKH6WDWHRI9LFWRULDD6\QRSVLV¶3DSHUFRPPLVVLRQHGE\WKH
'HSDUWPHQWRI7UHDVXU\DQG)LQDQFH0D\SDQGFRQILUPHGLQUHFHQWGLVFXVVLRQV
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
6KRXOGWKHULVNIUHHUDWHDOZD\VEH
XVHGWRFDOFXODWHWKH36&IRU
PDWHULDOV\VWHPDWLFULVNWUDQVIHU
SURMHFWVZLWKQHWFDVKRXWIORZV"
3URMHFWVZLWKQHWFDVKRXWIORZVPD\KDYHGLIIHUHQWV\VWHPDWLFULVNVDQGWKHUHIRUHLW
PLJKWEHDUJXHGWKDWGLIIHUHQWGLVFRXQWUDWHVVKRXOGEHXVHGWRFDOFXODWHWKH36&
UDWKHUWKDQWKHULVNIUHHUDWH
:KLOHLWLVWUXHWKDWSURMHFWVZLWKQHWFDVKRXWIORZVPD\KDYHGLIIHUHQWV\VWHPDWLF
ULVNVWKHFDOFXODWLRQRIWKH36&IRUDSDUWLFXODUSURMHFWLVXVHGWRFRPSDUHSULYDWH
VHFWRU ELGV IRU WKDW SURMHFW 7KH 36& LV DOZD\V EDVHG RQ WKH EHQFKPDUN SURMHFW
WKDW DVVXPHV WKDW JRYHUQPHQW LV UHWDLQLQJ DOO WKH V\VWHPDWLF ULVN LQKHUHQW LQ WKH
SURMHFW
7KH EHWDV DVVLJQHG WR HDFK SULYDWH VHFWRU ELG DUH EDVHG RQ WKH V\VWHPDWLF ULVNV
WUDQVIHUUHGWRWKHSULYDWHVHFWRUUHODWLYHWRWKRVHULVNVLQFOXGHGLQWKH36&
7KH 36& FDOFXODWHG IRU D SDUWLFXODU SURMHFW LV QRW XVHG WR FRPSDUH ZLWK RWKHU
SURMHFWV RU WR GHWHUPLQH WKH DFWXDO IXQGLQJ FRVWV IRU JRYHUQPHQW 7KHUHIRUH WKH
V\VWHPDWLF ULVNV UHODWLYH WR RWKHU SURMHFWV DUH QRW UHTXLUHG WR EH DVVHVVHG RU
LQFOXGHGLQWKHGLVFRXQWUDWHDWWKH36&VWDJHRIWKHDQDO\VLV
3DUWQHUVKLSV9LFWRULD
'LVFRXQW5DWHV
7KHIROORZLQJDUHH[SODQDWLRQVRIWHUPVXVHGLQWKH8VHRI'LVFRXQW5DWHVLQWKH
3DUWQHUVKLSV9LFWRULD3URFHVV7HFKQLFDO1RWH $VVHWEHWD
$ PHDVXUH RI WKH V\VWHPDWLF ULVN RI DQ DVVHW ZKLFK
UHIOHFWVWKHGHJUHHWRZKLFKDVVHWUHWXUQVDUHH[SHFWHG
WRYDU\ZLWKUHWXUQVRIWKHPDUNHWDVDZKROH
$VVHWUHVLGXDOYDOXH
ULVN
7KHULVNWKDWHYHQWVVXFKDVORVVHYHQWVWHFKQRORJLFDO
FKDQJH FRQVWUXFWLRQ RI FRPSHWLQJ IDFLOLWLHV RU
SUHPDWXUHREVROHVFHQFHZLOORFFXUZLWKWKHUHVXOWWKDW
WKH HFRQRPLF YDOXH RI WKH DVVHW PD\ YDU\ HLWKHU
GXULQJRUDWWKHHQGRIWKHFRQWUDFWWHUPIURPWKHYDOXH
XSRQ ZKLFK WKH ILQDQFLDO VWUXFWXUH RI WKH SURMHFW LV
EDVHG
$VVHWVSHFLILFULVN
5LVNWKDWLVVSHFLILFDOO\DWWULEXWDEOHWRWKHDVVHW
$YDLODELOLW\SD\PHQWV
$SD\PHQWPDGHWRWKHVHUYLFHSURYLGHUEDVHGRQWKH
DYDLODELOLW\ RI WKH DVVHW 7KLV LV LUUHVSHFWLYH RI DQ\
GHPDQGIRURUXVDJHRIWKHDVVHW
%HWD
$ PHDVXUH RI WKH YDULDELOLW\ RI UHWXUQV DJDLQVW WKH
PDUNHWDVDZKROHZKLFKFDQEHXVHGIRUHTXLW\ILUPV
RUJURXSVRIDVVHWV+RZHYHUIRUWKHSXUSRVHVRIWKLV
7HFKQLFDO 1RWH EHWD LV XVHG LQWHUFKDQJHDEO\ ZLWK
DVVHWEHWD
%LGHYDOXDWLRQ
$SURFHVVE\ZKLFKSURSRVDOVE\SULYDWHVHFWRUSDUWLHV
DUH HYDOXDWHG LQFOXGLQJ HYDOXDWLRQ DJDLQVW WKH 3XEOLF
6HFWRU&RPSDUDWRU
%RUURZLQJV
6HH'HEW
&DSLWDODVVHWSULFLQJ
PRGHO&$30
$Q HFRQRPLF PRGHO IRU YDOXLQJ VWRFNV E\ UHODWLQJ
V\VWHPDWLFULVNDQGH[SHFWHGUHWXUQ%DVHGRQWKHLGHD
WKDW LQYHVWRUV GHPDQG DGGLWLRQDO H[SHFWHG UHWXUQ
FDOOHG WKH ULVN SUHPLXP LI DVNHG WR DFFHSW DGGLWLRQDO
ULVN
&RPPRQZHDOWK%RQG
UDWH
6HH/RQJWHUPERQGUDWH
&RUHVHUYLFH
$VHUYLFHWKDWLVLQWHJUDOWRWKHRSHUDWLRQRIWKHDVVHWRU
SURMHFW DQG ZKLFK JRYHUQPHQW FKRRVHV WR SURYLGH
GLUHFW
7KHVHH[SODQDWLRQVDUHQRWQHFHVVDULO\WKHVDPHDVGHILQLWLRQVDGRSWHGLQDXWKRULWDWLYHGRFXPHQWV
VXFK DV DFFRXQWLQJ VWDQGDUGV +RZHYHU DW WKH WLPH RI SXEOLFDWLRQ WKH\ DUH QRW LQFRQVLVWHQW ZLWK
VXFKGHILQLWLRQV
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
&RUUHODWLRQ
$PHDVXUHRIKRZFORVHO\WZRYDULDEOHVPRYHWRJHWKHU
WKURXJKWLPH
&RVWRIFDSLWDO
7KH RSSRUWXQLW\ FRVW RI DQ LQYHVWPHQW LH WKH UDWH RI
UHWXUQWKDWDQLQYHVWRUZRXOGRWKHUZLVHEHDEOHWRHDUQ
DWWKHVDPHULVNOHYHODVWKHLQYHVWPHQWWKDWKDVEHHQ
VHOHFWHG
&RXQW\&RXUW
7KH 9LFWRULDQ &RXQW\ &RXUW 0HOERXUQH 9LFWRULD
RSHQHG0D\LVUHIHUUHGWRDVWKH&RXQW\&RXUWLQ
WKLVSXEOLFDWLRQ
&RYDULDQFH
7KH FRUUHODWLRQ EHWZHHQ WZR YDULDEOHV WLPHV WKH
VWDQGDUGGHYLDWLRQRIHDFK
'HEW
$ OLDELOLW\ RU REOLJDWLRQ RZHG WR DQRWKHU SHUVRQ RU
SHUVRQV DQG UHTXLUHG WR EH SDLG RQ GHPDQG RU E\ D
VSHFLILHGGDWH
'HIDXOWULVN
7KH ULVN RI WKH IDLOXUH RI D SDUW\ WR SHUIRUP D
FRQWUDFWXDOUHTXLUHPHQWRUREOLJDWLRQLQFOXGLQJIDLOXUHV
WR PHHW GHDGOLQHV WR SHUIRUP WR D VSHFLILHG VWDQGDUG
WR PHHW D ORDQ UHSD\PHQW RU WR PHHW LWV REOLJDWLRQV LQ
UHODWLRQWRDPDWHULDOLVHGULVN
'HPDQGULVN
6HH0DUNHWULVN
'HVLJQ&RQVWUXFWLRQ
ULVN
7KHULVNWKDWWKHGHVLJQFRQVWUXFWLRQRUFRPPLVVLRQLQJ
RI WKH IDFLOLW\ RU FHUWDLQ HOHPHQWV RI HDFK RI WKHVH
SURFHVVHV DUH FDUULHG RXW RU QRW FDUULHG RXW LQ D ZD\
ZKLFK UHVXOWV LQ DGYHUVH FRVW WLPH DQGRU VHUYLFH
GHOLYHU\ FRQVHTXHQFHV 7KH FRQVHTXHQFHV LI WKH ULVN
PDWHULDOLVHV PD\ LQFOXGH GHOD\V DQGRU FRVW LQFUHDVHV
LQWKHGHVLJQFRQVWUXFWLRQDQGFRPPLVVLRQLQJSKDVHV
RU GHVLJQ RU FRQVWUXFWLRQ IODZV ZKLFK PD\ UHQGHU WKH
LQIUDVWUXFWXUH LQDGHTXDWH IRU HIIHFWLYH VHUYLFH GHOLYHU\
HLWKHULPPHGLDWHO\RURYHUWLPH
'LVFRXQWUDWH
7KH UDWH XVHG WR FDOFXODWH WKH SUHVHQW YDOXH RI IXWXUH
FDVKIORZV
'LVFRXQWHGFDVKIORZ
'&)DQDO\VLV
$ JHQHUDO WHUP IRU DQDO\VLV ZKLFK GLVFRXQWV D VWUHDP
RIIXWXUHFDVKIORZVLQRUGHUWRFDOFXODWHDQHWSUHVHQW
YDOXH
'LYHUVLILDEOHULVN
5LVNWKDWLVVSHFLILFWRDQDVVHWWKDWPD\EHUHGXFHGRU
HYHQHOLPLQDWHGE\WKHXVHRIGLYHUVLILFDWLRQ
'LYHUVLILFDWLRQ
,QYHVWPHQW LQ D UDQJH RI DVVHWV ZLWK WKH DLP RI
UHGXFLQJ WKH ULVN RI WKH WRWDO SRUWIROLR LH JDLQV IURP
VRPH LQYHVWPHQWV RIIVHW WKH ORVVHV IURP RWKHU
LQYHVWPHQWV
'LYHUVLILHGSRUWIROLR
$SRUWIROLRWKDWKDVDFKLHYHGDUHGXFWLRQLQGLYHUVLILDEOH
ULVNE\LQYHVWLQJLQDUDQJHRIDVVHWV
(TXLW\
6KDUHKROGHUV¶IXQGVRUWRWDODVVHWVOHVVWRWDOOLDELOLWLHV
3DUWQHUVKLSV9LFWRULD
'LVFRXQW5DWHV
(TXLW\EHWD
7KHDVVHWEHWDDGMXVWHGWRUHIOHFWWKHFDSLWDOVWUXFWXUH
RIWKHHQWLW\
(YDOXDWLRQGLVFRXQW
UDWH
7KH GLVFRXQW UDWH XVHG WR DVVHVV WKH 3XEOLF 6HFWRU
&RPSDUDWRUDQGRUSULYDWHVHFWRUELGV
)LQDQFLDODVVHW
$QRQSK\VLFDODVVHWVXFKDVDVHFXULW\FHUWLILFDWHRU
EDQNEDODQFH
)LQDQFLDOEHQFKPDUN
$VWDQGDUGXVHGIRUFRPSDULVRQ
)LQDQFLDOULVN
7KH ULVN WKDW WKH ILQDQFLDO UHWXUQ RQ DQ LQYHVWPHQW ZLOO
YDU\IURPWKDWH[SHFWHG
,QIODWLRQULVN
7KHULVNWKDWLQIODWLRQZLOOYDU\IURPIRUHFDVWZKLFKPD\
LPSDFW RQ WKH H[SHFWHG FRVWV DQG UHYHQXHV RI WKH
SURMHFW
,QIUDVWUXFWXUH
)L[HG FDSLWDO DVVHWV VXFK DV VFKRROV DQG KRVSLWDOV
ZKLFK VXSSRUW WKH SURYLVLRQ RI VHUYLFHV ,QIUDVWUXFWXUH
FDQDOVRUHIHUWRDQHWZRUNRIUHWLFXODWHGVHUYLFHVVXFK
DVURDGVHQHUJ\VHUYLFHVUDLODLUSRUWVHWF
/RQJWHUPERQGUDWH
7KHSUHYDLOLQJPDUNHWUDWHIRUWHQ\HDU&RPPRQZHDOWK
*RYHUQPHQWERQGV
0DUNHWUHWXUQ
7KH UHWXUQ DFKLHYHG E\ LQYHVWPHQW LQ WKH PDUNHW DV D
ZKROHRULQDSRUWIROLRUHSUHVHQWLQJWKHZKROHPDUNHW
0DUNHWULVN
7KHULVNWKDWWKHGHPDQGRUSULFHIRUDVHUYLFHZLOOYDU\
IURP WKDW LQLWLDOO\ SURMHFWHG VR WKDW WKH WRWDO UHYHQXH
GHULYHG IURP WKH SURMHFW RYHU WKH SURMHFW WHUP YDULHV
IURPLQLWLDOH[SHFWDWLRQV
0DUNHWULVNSUHPLXP
7KH DGGLWLRQDO UHWXUQ UHTXLUHG E\ LQYHVWRUV WR EH
H[SRVHGWRWKHV\VWHPDWLFULVNRIWKHSURMHFW
0DWHULDOLPSDFW
$QLPSDFWRIVLJQLILFDQWSURSRUWLRQV
0DWHULDOV\VWHPDWLF
ULVNWUDQVIHU
7KHWUDQVIHURIDPDWHULDOOHYHORIWKHV\VWHPDWLFULVNV
RIDSURMHFW
0HDQ
$VWDWLVWLFDODYHUDJHFDOFXODWHGE\GLYLGLQJWKHVXPRI
DVHWRIYDOXHVE\WKHQXPEHURIYDOXHV
1HWFDVKLQIORZ
3URMHFWV ZKHUH WKH WRWDO FDVK IORZV WR JRYHUQPHQW LQ
WKHUHIHUHQFHSURMHFWDUHSRVLWLYH
1HWFDVKRXWIORZ
3URMHFWV ZKHUH WKH WRWDO FDVK IORZV WR JRYHUQPHQW LQ
WKHUHIHUHQFHSURMHFWDUHQHJDWLYH
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
1HWSUHVHQWFRVW13&
7KH HTXLYDOHQW FRVW DW D JLYHQ WLPH RI D VWUHDP RI
IXWXUH QHW FDVK RXWOD\V FDOFXODWHG E\ GLVFRXQWLQJ WKH
DFWXDOYDOXHVDWWKHDSSURSULDWHGLVFRXQWUDWH
1HWSUHVHQWYDOXH
139
7KH HTXLYDOHQW YDOXH DW D JLYHQ WLPH RI D VWUHDP RI
IXWXUH QHW FDVK LQIORZV FDOFXODWHG E\ GLVFRXQWLQJ WKH
DFWXDOYDOXHVDWWKHDSSURSULDWHGLVFRXQWUDWH
1RPLQDOFDVKIORZV
&DVKIORZVZKLFKDUHDGMXVWHGWRLQFOXGHWKHLPSDFWRI
LQIODWLRQ'LIIHUIURPUHDOFDVKIORZV
1RPLQDOGLVFRXQWUDWH
$ GLVFRXQW UDWH XVHG WR GLVFRXQW QRPLQDO FDVK IORZV
LHDUDWHWKDWLQFOXGHVLQIODWLRQ
1RQGLYHUVLILDEOHULVN
6HH6\VWHPDWLFULVN
1RQV\VWHPDWLFULVN
6HH'LYHUVLILDEOHULVN
2SSRUWXQLW\FRVW
7KH FRVW RI SDVVLQJ XS RQH LQYHVWPHQW LQ IDYRXU RI
DQRWKHU
3UHVHQWYDOXH
7KHYDOXHRIDVHULHVRIIXWXUHFDVKIORZVGLVFRXQWHGWR
WRGD\¶VGROODUV
3UHWD[FDVKIORZV
&DVKIORZVEHIRUHLQFRPHWD[HVKDYHEHHQGHGXFWHG
3ULFHULVN
7KHULVNRIYRODWLOLW\LQWKHSULFHRIVHUYLFHVRYHUWKHOLIH
RIWKHSURMHFW
3ULYDWHSDUW\
7KH SULYDWH VHFWRU HQWLW\ ZLWK ZKLFK JRYHUQPHQW
GLUHFWO\ FRQWUDFWV 7UDGLWLRQDOO\ WKH SULYDWH SDUW\ KDV
EHHQDVSHFLDOSXUSRVHYHKLFOHFUHDWHGVSHFLILFDOO\IRU
WKH SXUSRVHV RI WKH SURMHFW 7KH SULYDWH SDUW\ LV QRW
OLPLWHGWRWKLVIRUPDQGFDQEHVHWXSXQGHUDQXPEHU
RI VWUXFWXUHV LQFOXGLQJ D MRLQW YHQWXUH DQG D WUXVW
VWUXFWXUH%HKLQGWKHFRQWUDFWLQJSDUW\KRZHYHUWKHUH
PD\ EH D QXPEHU RI SULYDWH VHFWRU LQWHUHVWV DW SOD\
VHHNLQJ WR EH UHSUHVHQWHG WKURXJK WKH FRQWUDFWLQJ
SDUW\
3UREDELOLW\GLVWULEXWLRQ
$ FXUYH WKDW VKRZV DOO WKH YDOXHV WKDW D UDQGRP
YDULDEOH FDQ WDNH DQG WKH OLNHOLKRRG WKDW HDFK ZLOO
RFFXU
3URMHFWSD\PHQW
PHFKDQLVP
7KH PHFKDQLVP IRU WKH FDOFXODWLRQ RI VHUYLFH
SD\PHQWV 7KLV LQFOXGHV WKH NH\ VHUYLFH OHYHOV DQG
DEDWHPHQWFULWHULD
3URMHFWUDWH
7KH GLVFRXQW UDWH XVHG WR DVVHVV WKH SURMHFW FDVK
IORZV
3DUWQHUVKLSV9LFWRULD
'LVFRXQW5DWHV
3XEOLF6HFWRU
&RPSDUDWRU36&
7KH 3XEOLF 6HFWRU &RPSDUDWRU 36& UHSUHVHQWV WKH
PRVW HIILFLHQW OLNHO\ SXEOLF SURFXUHPHQW FRVW LQFOXGLQJ
DOO FDSLWDO DQG RSHUDWLQJ FRVWV DQG VKDUH RI
RYHUKHDGV±DIWHU DGMXVWPHQWV IRU &RPSHWLWLYH
1HXWUDOLW\ 5HWDLQHG 5LVN DQG 7UDQVIHUDEOH 5LVN±WR
DFKLHYHWKHUHTXLUHGVHUYLFHGHOLYHU\RXWFRPHV7KLVLV
XVHG DV D ILQDQFLDO EHQFKPDUN IRU DVVHVVLQJ WKH
SRWHQWLDO YDOXH IRU PRQH\ RI SULYDWH SDUW\ ELGV LQ
3DUWQHUVKLSV9LFWRULDSURMHFWV
5DZ36&
7KH EDVH FRVWLQJ XQGHU D SXEOLF SURFXUHPHQW ZKHUH
WKH XQGHUO\LQJ DVVHW RU VHUYLFH LV SURYLGHG GLUHFWO\ E\
WKH SXEOLF VHFWRU RQ WKH VDPH WHUPV DQG GHILQHG
SHUIRUPDQFH VWDQGDUG UHTXLUHG XQGHU WKH RXWSXW
VSHFLILFDWLRQ,WGRHVQRWLQFOXGHDQ\DOORFDWLRQRIYDOXH
IRU ULVNV DQG FRQWLQJHQFLHV UHWDLQHG E\ JRYHUQPHQW
ZKLFKPD\DIIHFWFDVKIORZV
5HDOFDVKIORZV
&DVK IORZV UHSUHVHQWHG LQ FXUUHQW GD\ WHUPV LH QR
DGMXVWPHQWIRULQIODWLRQLVPDGHIRUIXWXUHFDVKIORZV
5HDOGLVFRXQWUDWH
$GLVFRXQWUDWHXVHGWRGLVFRXQWUHDOFDVKIORZVLHD
UDWHWKDWGRHVQRWLQFOXGHLQIODWLRQ
5HDOULVNSUHPLXP
7KHULVNSUHPLXPDGMXVWHGIRUWKHHIIHFWVRILQIODWLRQ
5HIHUHQFHSURMHFW
7KH PRVW OLNHO\ DQG HIILFLHQW IRUP RI SXEOLF VHFWRU
GHOLYHU\ WKDW FRXOG EH XVHG WR VDWLVI\ DOO HOHPHQWV RI
WKHRXWSXWVSHFLILFDWLRQ
5HWDLQHGULVN
7KH YDOXH RI WKRVH ULVNV RU SDUWV RI D ULVN WKDW
JRYHUQPHQW SURSRVHV WR EHDU LWVHOI XQGHU D
3DUWQHUVKLSV9LFWRULDDUUDQJHPHQW
5LVN
7KHFKDQFHRIDQHYHQWRFFXUULQJZKLFKZRXOGFDXVH
DFWXDO SURMHFW FLUFXPVWDQFHV WR GLIIHU IURP WKRVH
DVVXPHGZKHQIRUHFDVWLQJSURMHFWEHQHILWVDQGFRVWV
5LVNDOORFDWLRQ
7KH DOORFDWLRQ RI UHVSRQVLELOLW\ IRU GHDOLQJ ZLWK WKH
FRQVHTXHQFHVRIHDFKULVNWRRQHRIWKHSDUWLHVWRWKH
FRQWUDFW RU DJUHHLQJ WR GHDO ZLWK WKH ULVN WKURXJK D
VSHFLILHG PHFKDQLVP ZKLFK PD\ LQYROYH VKDULQJ WKH
ULVN
5LVNEDQG
$ FODVVLILFDWLRQ RI WKH OHYHO RI V\VWHPDWLF ULVN WKDW LV
JHQHUDOO\HYLGHQWZLWKLQFHUWDLQSURMHFWVVHFWRUV
5LVNIUHH
$Q DVVHWOLDELOLW\ ZKRVH IXWXUH UHWXUQSD\PHQWV DUH
NQRZQZLWKFHUWDLQW\
5LVNIUHHUDWH
$WKHRUHWLFDOLQWHUHVWUDWHWKDWZRXOGEHUHWXUQHGRQDQ
LQYHVWPHQW ZKLFK ZDV FRPSOHWHO\ IUHH RI ULVN 7KH
ORQJWHUPERQGUDWHLVXVHGDVDSUR[\IRUWKHULVNIUHH
UDWH
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
5LVNPDWUL[
$ PHWKRG RI SUHVHQWLQJ DOO SRVVLEOH VLJQLILFDQW ULVNV
OLNHO\ WR EH HQFRXQWHUHG LQ D SURMHFW WKH PDJQLWXGH
DQG OLNHOLKRRG RI WKH ULVNV RFFXUULQJ WKHLU DUHDV RI
LPSDFWWKHDOORFDWLRQRIULVNVEHWZHHQSDUWLHVDQGWKH
ULVNPLWLJDWLRQWHFKQLTXHVWREHHPSOR\HG
5LVNSUHPLXP
7KH DPRXQW UHTXLUHG WR FRPSHQVDWH DQ LQYHVWRU IRU
DVVXPLQJ D SDUWLFXODU ULVN DWWDFKHG WR DQ LQYHVWPHQW
SURSRVDO
6WDQGDUGGHYLDWLRQ
$VWDWLVWLFDOPHDVXUHRIKLVWRULFDOYRODWLOLW\
6\VWHPDWLFULVN
0DUNHWZLGH ULVNV WKDW DIIHFW DOO DVVHW FODVVHV DQG
FDQQRWEHUHGXFHGE\GLYHUVLILFDWLRQ
7D[,QFRPH
,QYROXQWDU\ SD\PHQW WR &RPPRQZHDOWK *RYHUQPHQW
EDVHGRQDGHILQHGLQFRPHOHYHO
7LPHSUHIHUHQFH
$UHIOHFWLRQRIWKHWLPHYDOXHRIPRQH\ZKLFKUHVXOWVLQ
D SUHIHUHQFH E\ LQYHVWRUV WR UHFHLYH IXQGV VRRQHU
UDWKHUWKDQODWHU
7UDQVIHUDEOHULVN
7KH YDOXH RI WKRVH ULVNV IURP JRYHUQPHQW¶V
SHUVSHFWLYH WKDW ZRXOG EH UHWDLQHG E\ JRYHUQPHQW LQ
WKH UHIHUHQFH SURMHFW EXW ZKLFK DUH OLNHO\ WR EH
DOORFDWHG WR WKH SULYDWH SDUW\ XQGHU D 3DUWQHUVKLSV
9LFWRULDGHOLYHU\PHWKRG
9DOXHIRUPRQH\9)0
$ TXDQWLWDWLYH DQG TXDOLWDWLYH DVVHVVPHQW RI WKH FRVWV
DQG EHQHILWV RI SXEOLF YHUVXV SULYDWH SURYLVLRQ RI
VHUYLFHV
9DULDQFH
$PHDVXUHRIWKHVSUHDGRIUHWXUQVZKHQFRPSDUHGWR
DQDYHUDJHRUµPHDQ¶&DOFXODWHGDVWKHVTXDUHRIWKH
VWDQGDUGGHYLDWLRQRIUHWXUQV
:HLJKWHGDYHUDJHFRVW
RIFDSLWDO:$&&
$ PHDVXUH RI WKH FRVW RI FDSLWDO FDOFXODWHG E\
ZHLJKWLQJWKHPDUJLQDOFRVWRIHDFKW\SHRIFDSLWDOLH
GHEW HTXLW\ HWF E\ WKH SURSRUWLRQ RI WKDW W\SH RI
FDSLWDOLQWKHILUP
VFDSLWDOVWUXFWXUH
:KROHPDUNHWSRUWIROLR
$IXOO\GLYHUVLILHGSRUWIROLRRIDVVHWVWKDWPRYHVLQOLQH
ZLWK RU LV FRPSULVHG RI D ZHLJKWHG DYHUDJH RI DOO
DVVHWVZLWKLQWKHPDUNHW
:KROHRIOLIH
ULVNLQFOXVLYHFRVW
7KHWRWDOFRVWRIDSURMHFWZKLFKWDNHVLQWRDFFRXQWDOO
FRVWV DQG ULVNV DFURVV WKH HQWLUH WLPH SHULRG RI WKH
SURMHFW
3DUWQHUVKLSV9LFWRULD
'LVFRXQW5DWHV
$VRXWOLQHGLQ&KDSWHUIRUPRVW3DUWQHUVKLSV9LFWRULDSURMHFWVLWLVUHFRPPHQGHG
WKDW WKH VDPH GLVFRXQWUDWHWKHSURMHFWUDWHLVXVHGE\JRYHUQPHQWIRUWKH36&
DQGWRDVVHVVELGV7KLVSURFHVVLVVWUDLJKWIRUZDUGDQGLVQRWDGGUHVVHGIXUWKHULQ
WKLVDSSHQGL[
+RZHYHU IRU WKRVH 3DUWQHUVKLSV 9LFWRULD SURMHFWV ZKHUH LW LV FRQVLGHUHG WKDW
PDWHULDO V\VWHPDWLF ULVN LV WUDQVIHUUHG HVWLPDWLRQ RI DQ DGMXVWHG GLVFRXQW UDWH WR
HYDOXDWHELGGHUV¶FDVKIORZVPD\EHZDUUDQWHG
%
3URMHFWVZLWKQHWFDVKLQIORZV
:KHUHWKHQHWFDVKIORZVWRJRYHUQPHQWDUHSRVLWLYHWKHQDFRQYHQWLRQDOXVHRI
WKH &$30 LV DSSURSULDWH LH WKH KLJKHU WKH V\VWHPDWLF ULVN LQKHUHQW LQ
JRYHUQPHQW¶V QHW FDVK LQIORZV WKH KLJKHU WKH GLVFRXQW UDWH DSSOLHG WR WKRVH
VSHFLILF FDVK IORZV ([DPSOHV RI SURMHFWV ZKHUH JRYHUQPHQW ZRXOG UHFHLYH D QHW
FDVK LQIORZ LI GHOLYHUHG E\ JRYHUQPHQW LH WKH 36& VFHQDULR LQFOXGH WKH
0HOERXUQH&DVLQRDQGWKH&LW\/LQNWROOURDG
$QH[DPSOHRIWKHHIIHFWRIGLIIHUHQWEHWDVDQGWKHUHIRUHGLIIHUHQWGLVFRXQWUDWHVLQ
'&)DQDO\VLVLVVKRZQEHORZ
([DPSOH±1HWFDVKLQIORZWRJRYHUQPHQW
&RQVLGHU WZR SURMHFWV ZLWK WKH VDPH QHW FDVK LQIORZV WR JRYHUQPHQW EXW ZLWK
GLIIHUHQW V\VWHPDWLF ULVNV LQKHUHQW LQ HDFK VHW RI FDVK IORZV *RYHUQPHQW¶V FDVK
IORZV IRU 3URMHFW $ KDYH KLJKHU V\VWHPDWLF ULVNV DQG WKHUHIRUH ZLOO KDYH D KLJKHU
GLVFRXQWUDWH7KLVUHVXOWVLQDORZHU139 WKDQIRU3URMHFW%ZKRVHFDVKIORZVWR
JRYHUQPHQW KDYH ORZHU V\VWHPDWLF ULVNV 7KH GLIIHUHQFH LQ 139V UHIOHFWV WKH
GLIIHUHQWV\VWHPDWLFULVNVLQKHUHQWLQJRYHUQPHQW¶VFDVKIORZVWREHUHFHLYHGIURP
HDFKSURMHFW7DEOHV%DQG%GHPRQVWUDWHWKLVWKHRU\
7DEOH%
3DUWQHUVKLSV9LFWRULDH[DPSOHELGV±SURMHFWHGFDVKLQIORZV
DQGULVNWRJRYHUQPHQW
3URMHFWFDVKLQIORZVP
7RWDO
<HDU
<HDU
<HDU
<HDU
<HDU
%LGGHU$
+LJKV\VWHPDWLFULVNERUQHE\JRYHUQPHQW
%LGGHU%
/RZV\VWHPDWLFULVNERUQHE\JRYHUQPHQW
$SRVLWLYH139UHSUHVHQWVDQHWFDVKLQIORZ
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
7DEOH%
3DUWQHUVKLSV9LFWRULDH[DPSOHELGV±ULVNOHYHOGLVFRXQWUDWH
DQGQHWSUHVHQWYDOXH139WRJRYHUQPHQW
3URMHFW
%HWD
'LVFRXQW
UDWH
139
P
%LGGHU$
+LJKV\VWHPDWLFULVNERUQHE\JRYHUQPHQW
%LGGHU%
/RZV\VWHPDWLFULVNERUQHE\JRYHUQPHQW
1RWH
'LVFRXQW UDWH DVVXPHV ULVNIUHH UDWH RI PDUNHW ULVN SUHPLXP RI URXQGHG WR
QHDUHVWZKROHQXPEHU
3URMHFW % SURYLGHV D JUHDWHU ULVNDGMXVWHG 139 WR JRYHUQPHQW DQG VR ZRXOG EH
SUHIHUUHGRYHU3URMHFW$
%
'LVFRXQWUDWHIRU36&
:KHUH WKH QHW FDVK IORZV WR JRYHUQPHQW DUH SRVLWLYH WKH GLVFRXQW UDWH XVHG WR
FDOFXODWH WKH 36& LV EDVHG RQ WKH DVVXPSWLRQ WKDW JRYHUQPHQW UHWDLQV DOO WKH
SURMHFW¶VV\VWHPDWLFULVNV7KHUHVXOWLQJEHWDFDOFXODWHGLQWKH&$30LVNQRZQDV
WKHDVVHWEHWDDQGWKHGLVFRXQWUDWH5DLVGHILQHGDVWKHSURMHFWUDWH7KLVVKRXOG
EHFDOFXODWHGDVLQ&KDSWHU
%
'LVFRXQWUDWHIRUDVVHVVLQJELGV
)RUD3DUWQHUVKLSV9LFWRULDSURMHFWZKLFKLVWREHGHOLYHUHGLQFRQMXQFWLRQZLWKWKH
SULYDWH VHFWRU JRYHUQPHQW¶V QHW FDVK IORZV ZLOO EH ELG E\ HDFK SULYDWH VHFWRU
SURYLGHU
7KH GLVFRXQW UDWH XVHG WR DVVHVV JRYHUQPHQW¶V QHW FDVK LQIORZV UHIOHFWV WKH
SURSRVHG WUDQVIHU RI V\VWHPDWLF ULVN IURP JRYHUQPHQW WR WKH SULYDWH VHFWRU
SURYLGHU 7KLV WUDQVIHU RU DOORFDWLRQ RI V\VWHPDWLF ULVNV ZLOO EH VHW RXW LQ WKH
SURSRVHG FRQWUDFW EHWZHHQ WKH WZR SDUWLHV DQG WKHUHIRUH WKH EHWD IRU HDFK ELG
PD\YDU\GHSHQGLQJRQWKHOHYHORIULVNVDFFHSWHGE\HDFKSURYLGHU
$VJRYHUQPHQW¶VFDVKIORZVZLOOEHVXEMHFWWROHVVV\VWHPDWLFULVNWKDQWKRVHFDVK
IORZV HVWLPDWHG IRU WKH 36& WKH GLVFRXQW UDWH XVHG WR DVVHVV WKH SULYDWH VHFWRU
ELGVZLOOEHOHVVWKDQWKHSURMHFWUDWH
7KHIROORZLQJJUDSKGHPRQVWUDWHVWKHFDOFXODWLRQRIGLVFRXQWUDWHVXVHGWRDVVHVV
JRYHUQPHQW¶V QHW FDVK LQIORZV IURP D SURMHFW GHOLYHUHG LQ FRQMXQFWLRQ ZLWK WKH
SULYDWHVHFWRU,QSUDFWLFHDGLVFRXQWUDWHFRXOGEHGHWHUPLQHGIURPWKHJUDSKDQG
DSSOLHGWRJRYHUQPHQW¶VQHWFDVKLQIORZV
7KHULVNIUHHUDWHZLOOEHUHYLHZHGIURPWLPHWRWLPHE\'7)DQGDUHYLVHGUDWHZLOOEHSXEOLVKHGYLD
ZZZSDUWQHUVKLSVYLFJRYDXZKHQFRQVLGHUHGQHFHVVDU\
2IILFHU 5 µ7KH &RVW RI &DSLWDO IRU WKH 6WDWH RI 9LFWRULDD6\QRSVLV¶3DSHUFRPPLVVLRQHGE\WKH
'HSDUWPHQWRI7UHDVXU\DQG)LQDQFH0D\SDQGFRQILUPHGLQUHFHQWGLVFXVVLRQV
3DUWQHUVKLSV9LFWRULD
)LJXUH%
'LVFRXQW5DWHV
'LVFRXQWUDWHFDOFXODWLRQ±QHWFDVKLQIORZWRJRYHUQPHQW
3URMHFWUDWH
'LVFRXQW
UDWH
5LVNIUHHUDWH
LHbD $OOULVNV
UHWDLQHG
%
6\VWHPDWLF
ULVNWUDQVIHU
WRSULYDWHVHFWRU
$OOULVNV
WUDQVIHUUHG
3URMHFWVZLWKQHWFDVKRXWIORZV
3URMHFWV ZLWK QHJDWLYH FDVK IORZV LH QHW FDVK RXWIORZV RU QHW SD\PHQWV DUH
W\SLFDO RI JRYHUQPHQW SURMHFWV LQ WKH VRFLDO LQIUDVWUXFWXUH ILHOG ([DPSOHV LQFOXGH
SULVRQV KRVSLWDOV DQG WUDQVSRUW LQWHUFKDQJH SURMHFWV )RU WKHVH SURMHFWV WKH
DSSURDFKXVHGDERYHWRGLVFRXQWJRYHUQPHQW¶VFDVKIORZSURILOHFDQQRWEHXVHGLQ
WKHYDOXHIRUPRQH\WHVW
%\XVLQJWKHVWDQGDUGPHWKRGRORJ\WRFDOFXODWHGLVFRXQWUDWHVIRUQHWFDVKRXWIORZ
SURMHFWV RWKHU WKLQJV HTXDO D PRUH ULVN\ QHW FDVK RXWIORZ ZRXOG EH DVVLJQHG D
KLJKHUGLVFRXQWUDWHUHVXOWLQJLQDORZHU13&2WKHUWKLQJVEHLQJHTXDOWKLVZRXOG
PDNHWKHKLJKHUULVNSURMHFWDSSHDUSUHIHUDEOHWRDORZHUULVNSURMHFWZKHUHDVD
UDWLRQDO SDUW\ ZRXOG SUHIHU WKH ORZHU ULVN SURMHFW 7KLV SULQFLSOH LV RXWOLQHG LQ
7DEOH%
7DEOH%
3DUWQHUVKLSV 9LFWRULD SURMHFWV ZLWK QHW FDVK RXWIORZV ± ULVN
OHYHODQGQHWSUHVHQWFRVW13&
3OHDVH QRWH 7KLV LV DQ H[DPSOH RI WKH LQFRUUHFW GHWHUPLQDWLRQ RI GLVFRXQW UDWHV IRU SURMHFWV ZLWK QHW
FDVKRXWIORZV
3URMHFW2SWLRQ
<HDUHQGFDVKFRVW
<HDU
<HDU
<HDU
13&
3URMHFW$±/RZULVN
$WP
3URMHFW%±+LJKULVN
$WP
5HIHUWR6HFWLRQIRUDQH[DPSOHRIWKLVLQFRUUHFWXVHRIGLVFRXQWUDWHVLQGLVFRXQWHGFDVKIORZ
'&)DQDO\VLV
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
%
'LVFRXQWUDWHIRU36&
)RU WKH SXUSRVHV RI HVWDEOLVKLQJ D 36& WR FRPSDUH SULYDWH VHFWRU ELGV DQG WR
HQVXUH D UDWLRQDO RXWFRPH IRU SURMHFWV ZLWK QHW FDVK RXWIORZV WKH ULVNIUHH UDWH
VKRXOGEHXVHGWRGLVFRXQWJRYHUQPHQW¶V36&FDVKIORZV
7KH XVH RI WKH ULVNIUHH UDWH DV D GLVFRXQW UDWH LV YDOLG LQ WKLV FRQWH[W IRU
GHWHUPLQLQJ D EHQFKPDUN WKH 36& IRU ZKLFK SULYDWH VHFWRU SURSRVDOV FDQ EH
WHVWHG 7KH SXUSRVH LV WR HQVXUH WKDW JRYHUQPHQW LV REWDLQLQJ WKH EHVW YDOXH IRU
PRQH\LQGHOLYHULQJWKHSURMHFW
7KH 13& YDOXH RI WKH 36& FDOFXODWHG XVLQJ WKH ULVNIUHH UDWH ZLOO QRW JLYH DQ
HVWLPDWH RI WKH WUXH FRVW WR JRYHUQPHQW RI GHOLYHULQJ WKH SURMHFW DV WKH ULVNIUHH
UDWHGRHVQRWUHSUHVHQWJRYHUQPHQW¶VDFWXDOFRVWRIFDSLWDO
,QDGGLWLRQJRYHUQPHQW¶VXVHRIWKHULVNIUHHUDWHLQGHWHUPLQLQJWKH36&LV

QRWVWDWLQJWKDWWKHJRYHUQPHQWLQYHVWPHQWLVULVNOHVV

QRWVWDWLQJWKDWWKHDVVHWEHWDRIWKHXQGHUO\LQJDVVHWVLV]HUR

QRW VWDWLQJ WKDW JRYHUQPHQW LQWHQGV WR ERUURZ WR IXQG WKH SURMHFW DQG WKH
ERUURZLQJUDWHUHSUHVHQWVWKHFRVWWRJRYHUQPHQWRIXQGHUWDNLQJWKHSURMHFW
)RUQHWFDVKRXWIORZSURMHFWVWKHXVHRIWKHULVNIUHHUDWHDVDGLVFRXQWUDWHIRUWKH
36&

UHFRJQLVHV WKDW WKH VWDQGDUG PHWKRGRORJ\ XVHG WR FDOFXODWH GLVFRXQW UDWHV
SURYLGHVDQLUUDWLRQDORXWFRPHZKHQXVHGIRUSURMHFWVZLWKQHWFDVKRXWIORZV

DOORZV WKH GLVFRXQW UDWH XVHG WR DVVHVV SULYDWH VHFWRU ELGV WR EH DGMXVWHG
GHSHQGLQJ RQ WKH DOORFDWLRQ RI V\VWHPDWLF ULVN EHWZHHQ JRYHUQPHQW DQG WKH
SULYDWHVHFWRU
7KLVDSSURDFKKDVEHHQFKRVHQEHFDXVHRILWVUHODWLYHVLPSOLFLW\WRJHWKHUZLWKLWV
DELOLW\WR\LHOGDSSURSULDWHUDQNLQJVRIWKH36&DQGELGV
%
'LVFRXQWUDWHIRUDVVHVVLQJELGV
,QFRPSDULQJWKHILQDQFLDOFRVWRIDSULYDWHVHFWRUELGZLWKWKH36&WKHWUDQVIHURI
PRUH V\VWHPDWLF ULVN WR WKH SULYDWH VHFWRU LV SUHIHUDEOH RWKHU WKLQJV HTXDO IRU
JRYHUQPHQW)RUWKH'&)DQDO\VLVLQQHWFDVKRXWIORZSURMHFWVDKLJKHUEHWDDQG
WKHUHIRUH D KLJKHU GLVFRXQW UDWH VKRXOG DSSO\ WR JRYHUQPHQW¶V QHW FDVK RXWIORZV
ZKHUH JUHDWHU V\VWHPDWLF ULVN LV WUDQVIHUUHG WR WKH SULYDWH VHFWRU 7KH KLJKHU
GLVFRXQWUDWHUHVXOWVLQDORZHU13&WRJRYHUQPHQW
&RQYHUVHO\ORZHUULVNDFFHSWHGE\WKHSULYDWHVHFWRUSURYLGHULVDQDGYHUVHUHVXOW
RWKHU WKLQJV HTXDO DQG WKHUHIRUH WKH EHWD ZLOO EH ORZHU UHVXOWLQJ LQ D ORZHU
GLVFRXQWUDWH7KHORZHUGLVFRXQWUDWHUHVXOWVLQDKLJKHU13&WRJRYHUQPHQW
)LJXUH % GHPRQVWUDWHV WKH FDOFXODWLRQ RI GLVFRXQW UDWHV XVHG WR DVVHVV SULYDWH
VHFWRU ELGV IRU SURMHFWV ZLWK QHW FDVK RXWIORZV $JDLQ WKH GLVFRXQW UDWH FRXOG EH
GHWHUPLQHGIURPWKHJUDSKDQGDSSOLHGWRJRYHUQPHQW¶VQHWFDVKRXWIORZV
3DUWQHUVKLSV9LFWRULD
)LJXUH%
'LVFRXQW5DWHV
'LVFRXQWUDWHFDOFXODWLRQ±QHWFDVKRXWIORZVWRJRYHUQPHQW
3URMHFWUDWH
'LVFRXQW
UDWH
5LVNIUHHUDWH
LHbD 6\VWHPDWLF
ULVNWUDQVIHUWR
SULYDWHVHFWRU
$OOULVNV
UHWDLQHG
$OOULVNV
WUDQVIHUUHG
$Q H[DPSOH RI WKH HIIHFW RQ SURMHFWV ZLWK QHW FDVK RXWIORZV RI GLIIHUHQW EHWDV LV
VKRZQEHORZ
([DPSOH±1HWFDVKRXWIORZWRJRYHUQPHQW
&RQVLGHUDSURMHFWZLWKWZRGLIIHUHQWSULYDWHVHFWRUELGV%LGGHU$DQG%%RWKELGV
UHTXHVW JRYHUQPHQW WR PDNH WKH VDPH QHW FDVK RXWIORZV WKRXJK HDFK ELG
WUDQVIHUVDGLIIHUHQWDPRXQWRIV\VWHPDWLFULVNWRWKHSULYDWHVHFWRU
7KH SURSRVHG FDVK IORZV IRU %LGGHU $ KDYH PRUH V\VWHPDWLF ULVNV WUDQVIHUUHG WR
WKHSULYDWHVHFWRUWKDQIRU%LGGHU%7KHUHIRUHJRYHUQPHQW¶VFDVKIORZVLQ3URMHFW
$ DUH VXEMHFW WR OHVV V\VWHPDWLF ULVN EHLQJ UHWDLQHG E\ JRYHUQPHQW DQG IRU
FRPSDUDWLYHSXUSRVHVZLOOEHDVVLJQHGDKLJKHUEHWDWKDQ3URMHFW%
7KHKLJKHUEHWDUHVXOWVLQDKLJKHUGLVFRXQWUDWHIRU%LGGHU$DQGWKHUHIRUHDORZHU
13& WRJRYHUQPHQWIRU%LGGHU$7DEOHV%DQG%GHPRQVWUDWHWKLV
1HWSUHVHQWFRVW13&UHSUHVHQWVDQHWFDVKRXWIORZRUPD\DOVREHFRQVLGHUHGDVDQHJDWLYHQHW
SUHVHQWYDOXH139
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
7DEOH%
([DPSOH 3DUWQHUVKLSV 9LFWRULD SURMHFWV ± FDVK RXWIORZV E\
\HDUDQGULVNOHYHOV
3URMHFWFDVKRXWIORZVP
7RWDO
<HDU
<HDU
<HDU
<HDU
<HDU
%LGGHU$
+LJKV\VWHPDWLFULVNWUDQVIHUUHGWRSULYDWHVHFWRU
/RZV\VWHPDWLFULVNERUQHE\JRYHUQPHQW
%LGGHU%
/RZV\VWHPDWLFULVNWUDQVIHUUHGWRSULYDWHVHFWRU
+LJKV\VWHPDWLFULVNERUQHE\JRYHUQPHQW
7DEOH%
([DPSOH3DUWQHUVKLSV9LFWRULDSURMHFWV±ULVNOHYHOVGLVFRXQW
UDWHVDQGQHWSUHVHQWFRVWV13&
3URMHFW
%HWD
'LVFRXQW
UDWH
13&
P
%LGGHU$
+LJKV\VWHPDWLFULVNWUDQVIHUUHGWRSULYDWHVHFWRU
/RZV\VWHPDWLFULVNERUQHE\JRYHUQPHQW
%LGGHU%
/RZV\VWHPDWLFULVNWUDQVIHUUHGWRSULYDWHVHFWRU
+LJKV\VWHPDWLFULVNERUQHE\JRYHUQPHQW
1RWH
'LVFRXQW UDWH DVVXPHV ULVNIUHH UDWH RI PDUNHW ULVN SUHPLXP RI URXQGHG WR
QHDUHVWZKROHQXPEHU
$V VKRZQ LQ WKH H[DPSOH DERYH %LG $ KDV D ORZHU 13& WR JRYHUQPHQW DQG
WKHUHIRUHZRXOGEHSUHIHUUHGRYHU%LG%7KLVFRUUHVSRQGVZLWKWKHV\VWHPDWLFULVN
WUDQVIHUUHGDV%LGGHU$WUDQVIHUVPRUHULVNWRWKHSULYDWHVHFWRUWKDQ%LGGHU%
7KHULVNIUHHUDWHZLOOEHUHYLHZHGIURPWLPHWRWLPHE\'7)DQGDUHYLVHGUDWHZLOOEHSXEOLVKHGYLD
ZZZSDUWQHUVKLSVYLFJRYDXZKHQFRQVLGHUHGQHFHVVDU\
2IILFHU 5 µ7KH &RVW RI &DSLWDO IRU WKH 6WDWH RI 9LFWRULDD6\QRSVLV¶3DSHUFRPPLVVLRQHGE\WKH
'HSDUWPHQWRI7UHDVXU\DQG)LQDQFH0D\SDQGFRQILUPHGLQUHFHQWGLVFXVVLRQV
3DUWQHUVKLSV9LFWRULD
'LVFRXQW5DWHV
7KH PDUNHW ULVNLQHVV RU V\VWHPDWLF ULVN RI D SURMHFW LV PHDVXUHG WKURXJK WKH
VHQVLWLYLW\ RI LWV UHWXUQV WR PDUNHW PRYHPHQWV 7KLV PHDVXUH LV GHILQHG DV WKH
DVVHWEHWDbDDQGIRUPVSDUWRIWKHFDSLWDODVVHWSULFLQJPRGHO&$30IRUPXOD
5D 5IbD5P±5I
7KLV DSSHQGL[ SURYLGHV DVVLVWDQFH ZLWK FDOFXODWLQJ WKH DVVHW EHWD WR DSSO\ WR
SULYDWHVHFWRUELGVLQFDVHVZKHUHD3DUWQHUVKLSV9LFWRULDSURMHFWWUDQVIHUVPDWHULDO
V\VWHPDWLFULVNWRWKHSULYDWHSDUW\VHH6HFWLRQ
7KHIROORZLQJPDWHULDOZDVRULJLQDOO\SUHSDUHGE\WKH0HOERXUQHRIILFHRI'HORLWWH
7RXFKH 7RKPDWVX ZLWK VXSSRUW IURP WKH $OOHQ &RQVXOWLQJ *URXS 7KH
PHWKRGRORJ\ RXWOLQHG ZDV SDUW RI D ODUJHU UHSRUW FRQVLGHUHG E\ D +HDGV RI
7UHDVXULHV IRUXP LQ PLG ,W KDV EHHQ UHSURGXFHG ODUJHO\ XQDOWHUHG ZLWK
SHUPLVVLRQ
&DVHVWXG\±9LFWRULDQ&RXQW\&RXUW
7KLVDSSHQGL[LVGHVLJQHGWRSURYLGHSUDFWLWLRQHUVZLWKDQH[DPSOHRIWKHSUDFWLFDO
ZRUNLQJV RI WKH PHWKRGRORJ\ EDVHG RQ D UHDOOLIH SURMHFW 3OHDVH QRWH WKDW WKLV
H[DPSOH LV IRU LOOXVWUDWLYH SXUSRVHV RQO\ DQG VKRXOG QRW EH WDNHQ WR UHIOHFW WKH
DFWXDO GHFLVLRQPDNLQJ RU DFWXDO UHVXOWV RI WKH SURMHFW WHDP¶V GHOLEHUDWLRQV 1RU
VKRXOG LW EH WDNHQ WR EH D FULWLTXH RI WKH SURMHFW WHDP¶V ZRUN RU WKH RXWFRPHV
DFKLHYHG
7KH IROORZLQJ SURMHFW VXPPDU\ ZKLFK LV EDVHG RQ SXEOLFO\ DYDLODEOH LQIRUPDWLRQ
DLPV WR WDNH SUDFWLWLRQHUV WKURXJK HDFK VWHS RI WKH PHWKRGRORJ\ WR GHPRQVWUDWH
KRZ LW VKRXOG EH DSSOLHG LQ SUDFWLFH DQG DOVR GLVFXVVHV WKH FULWLFDO LVVXHV WKDW
VKRXOGEHFRQVLGHUHG
&
9LFWRULDQ &RXQW\ &RXUW SURMHFW±
EDFNJURXQG
7KH 9LFWRULDQ &RXQW\ &RXUW SURMHFW ZDV LQLWLDWHG LQ WKH ODWH V E\ WKH
JRYHUQPHQW RI WKH WLPH 7KH VHUYLFH UHTXLUHPHQWV KRZHYHU ZHUH FKDQJHG LQ
WR FRPSO\ ZLWK WKH LQFRPLQJ JRYHUQPHQW¶V QHZ 3DUWQHUVKLSV 9LFWRULD
SROLF\
&RQVLVWHQW ZLWK 3DUWQHUVKLSV 9LFWRULD SULQFLSOHV JRYHUQPHQW ZLOO FRQWLQXH WR
SURYLGH DOO VHUYLFHV UHODWLQJ WR WKH DGPLQLVWUDWLRQ RI MXVWLFH QRWDEO\ FDVH OLVW
PDQDJHPHQW UHJLVWU\ FRXUW UHSRUWLQJ DQG UHFRUGLQJ 7KLV LV GHDOW ZLWK LQ PRUH
GHWDLOEHORZ
6XEPLVVLRQWRWKH+HDGVRI7UHDVXULHV:RUNLQJ*URXSRQWKH&RVWRI&DSLWDO0HOERXUQH-XO\
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
7KHSUHYLRXV9LFWRULDQ&RXQW\&RXUWFRPSULVHGDFHQWUDOFRXUWIDFLOLW\VSUHDGRYHU
ILYH &%' ORFDWLRQV DQG D QXPEHU RI FLUFXLW FRXUWV LQ VXEXUEDQ DQG UHJLRQDO
9LFWRULD 7KH 9LFWRULDQ *RYHUQPHQW UHFRJQLVHG WKDW WKH FHQWUDO &RXQW\ &RXUW
IDFLOLW\ KDG D QXPEHU RI LQDGHTXDFLHV UHTXLULQJ KLJK SULRULW\ LPSURYHPHQWV ,Q
SDUWLFXODU WKH IDFLOLW\ KDG EHFRPH RXWGDWHG DQG LWV RYHUDOOFDSDFLW\QHHGHGWREH
LQFUHDVHG WR PHHW D SURMHFWHG LQFUHDVH LQ GHPDQG IRU FRXUW VHUYLFHV LQ WKH
0HOERXUQH &%' RYHU WKH QH[W \HDUV *LYHQ WKH GLIILFXOWLHV H[SHULHQFHG E\
JRYHUQPHQW LQ SURYLGLQJ EHVW SUDFWLFH MXGLFLDO DGPLQLVWUDWLRQ LQ WKH H[LVWLQJ
RXWGDWHG&RXQW\&RXUWLWVRXJKWWRLQYROYHWKHSULYDWHVHFWRULQGHOLYHULQJQRQFRUH
VHUYLFHVRQDYDOXHIRUPRQH\EDVLV7KHDLPZDVWRKHOSUHGXFHZDLWLQJWLPHVIRU
FRXUW DSSHDUDQFHV SURYLGH EHWWHU VHFXULW\ IRU WKH MXGLFLDU\ DQG DOO RWKHU FRXUW
XVHUVDQGUHGXFHFRXUWFRVWVWKURXJKWKHXVHRIQHZWHFKQRORJ\
2Q -XQH WKH /LEHUW\ *URXS &RQVRUWLXP 3W\ /WG 7/* ZDV FRQWUDFWHG WR
SURYLGH DFFRPPRGDWLRQ DQG RWKHU VXSSRUW VHUYLFHV WR WKH 'HSDUWPHQW RI -XVWLFH
'R-DW0HOERXUQH¶VQHZPLOOLRQ&RXQW\&RXUWEXLOGLQJRYHUD\HDUWHUP
7KHDVVXPHGHFRQRPLFOLIHRIWKHEXLOGLQJZDV\HDUV7/*ZLOOSURYLGH'R-ZLWK
HVVHQWLDO VHUYLFHV UHODWHG WR WKH HIIHFWLYH IXQFWLRQLQJ RI WKH EXLOGLQJ VXFK DV
EXLOGLQJVHFXULW\PDLQWHQDQFHDQGLQIRUPDWLRQWHFKQRORJ\
&
2YHUYLHZRIWKHPDLQIHDWXUHVRIWKH
SURMHFW
,WLVWKH6WDWH¶VUHVSRQVLELOLW\WRHQVXUHWKDWWKHFRXUWVHUYLFHVFRQWLQXHVHDPOHVVO\
GXULQJWUDQVLWLRQIURPRQHIDFLOLW\WRDQRWKHU
%URDGO\WKHFRUHREMHFWLYHVRIJRYHUQPHQWIRUWKH&RXQW\&RXUWSURMHFWKDYHEHHQ
GHILQHGDVIROORZV

IL[WKHEDFNORJLQWKHH[LVWLQJRXWGDWHG&RXUW

LPSURYHVHUYLFHTXDOLW\DQGDFFHVVWRMXVWLFH

HQVXUHFRXUWVHUYLFHVFRQWLQXLW\

HQVXUHFRQVLVWHQF\ZLWKJRYHUQPHQWUHTXLUHPHQWV

LPSURYHFRXUWSURGXFWLYLW\

SURYLGHDFRVWHIIHFWLYHVROXWLRQ±YDOXHIRUPRQH\9)0
*RYHUQPHQWUHTXLUHGWKHSULYDWHVHFWRUWRWDNHWKHORQJWHUPRZQHUVKLSULVNRIWKH
QHZ &RXUW IDFLOLW\ 7KH SULYDWH VHFWRU ZDV UHTXLUHG WR XQGHUWDNH WKH ILQDQFLQJ
GHVLJQFRQVWUXFWLRQDQGVSHFLILHGDQFLOODU\VHUYLFHGHOLYHU\IRUWKHQHZIDFLOLW\7KH
JRYHUQPHQWLQGLFDWHGWKDWLWZDVSUHSDUHGWRHQWHULQWRD\HDUFRQWUDFWZLWKWKH
SULYDWHVHFWRUWRSURYLGHDFFRPPRGDWLRQDQGVSHFLILHGDQFLOODU\VHUYLFHV%H\RQG
SURYLGLQJ VXSSRUW IRU SODQQLQJ DQG RWKHU DSSURYDO SURFHVVHV LW ZDV QRW WKH
LQWHQWLRQ RI JRYHUQPHQW WR SURYLGH JXDUDQWHHV WR WKH SURMHFW RWKHU WKDQ WKRVH
SURYLGHG DV SDUW RI WKH RUGLQDU\ FRPPHUFLDO DUUDQJHPHQWV 2YHUDOO WKH
JRYHUQPHQW REMHFWLYH ZDV WR PLQLPLVH WKH H[WHQW RI LWV ULVN H[SRVXUH 7KH
XQGHUO\LQJFRPPHUFLDODUUDQJHPHQWVIRUWKHQHZIDFLOLW\UHIOHFWJRYHUQPHQW¶VYLHZ
WKDW LW LV LQ WKH EXVLQHVV RI SURYLGLQJ FRUH FRXUW VHUYLFHV QRW SURYLGLQJ WKH
XQGHUO\LQJDVVHW
3DUWQHUVKLSV9LFWRULD
&
'LVFRXQW5DWHV
$SSO\LQJWKHPHWKRGRORJ\
6WHS :KDWDUHWKHV\VWHPDWLFULVNVLQWKHSURMHFW"
7KHLPSRUWDQWTXHVWLRQVWKDWQHHGWREHFRQVLGHUHGE\WKHSUDFWLWLRQHULQUHODWLRQ
WRV\VWHPDWLFULVNVDUH
L :KDWDUHWKH\"
LL +RZLPSRUWDQWLVWKHULVN"
LLL :KRLVEHDULQJWKHULVN"
7KH IDFWRUV OLNHO\ WR FRQWULEXWH WR WKH V\VWHPDWLF ULVN LQKHUHQW LQ D SURMHFW DUH
FRYHUHGLQ6HFWLRQ7KHUHDUHDQXPEHURIVRXUFHVRILQIRUPDWLRQDYDLODEOHWR
SUDFWLWLRQHUV WR DVVLVW LQ LGHQWLI\LQJ WKH QDWXUH DQG H[WHQW RI V\VWHPDWLF ULVNV
LQKHUHQW LQ WKH SURMHFW DQG LGHQWLI\LQJ ZKR LV EHDULQJ WKH ULVN 8VHIXO VRXUFHV RI
LQIRUPDWLRQIRULGHQWLI\LQJV\VWHPDWLFULVNVDUHWKHSURMHFWDJUHHPHQWVWKHSURMHFW
ULVN DOORFDWLRQ PDWUL[ DQG WKH SURMHFW SD\PHQW PHFKDQLVP ,Q WKH FRQWH[W RI WKH
&RXQW\&RXUWSURMHFWWKHIROORZLQJLQIRUPDWLRQLVUHOHYDQW
&RPPHUFLDOWHUPVUHIOHFWHGLQWKHSURMHFWDJUHHPHQWV
7KH SURMHFW DJUHHPHQWV SURYLGH XVHIXO LQIRUPDWLRQ WR DVVLVW LQ LGHQWLI\LQJ
V\VWHPDWLFULVNVDQGRQKRZULVNLVWREHVKDUHGEHWZHHQWKHSDUWLHV
,Q WKH FRQWH[W RI WKH &RXQW\ &RXUW WKH SULQFLSDO FRQWUDFW LV WKH &RXUW 6HUYLFHV
$JUHHPHQW&6$ ,W JRYHUQV WKH UHODWLRQVKLS EHWZHHQ WKH 6WDWH DQG 7/* LQ
UHVSHFWRI

WKHGHVLJQFRQVWUXFWLRQDQGPDLQWHQDQFHRIWKHQHZ&RXQW\&RXUW

WKHDYDLODELOLW\RIWKHFRXUWV

WKHRQJRLQJSURYLVLRQRIDQFLOODU\FRXUWVHUYLFHVRYHUWKHFRQWUDFWWHUP
,Q DGGLWLRQ WR WKH &6$ WKH RWKHU SULQFLSDO DJUHHPHQW ZKLFK LV DQ LQGLFDWRU RI
RQJRLQJULVNVKDULQJLVWKHFURZQOHDVH8QGHUDJURXQGOHDVHWKH6WDWHZLOOPDNH
WKH ODQG DYDLODEOH WR WKH SULYDWH VHFWRU RSHUDWRU RQ D \HDU OHDVH 7KLV LV
FRQVLGHUHG WR EH HTXLYDOHQW WR µRZQHUVKLS¶ DQG ZDV WR EH DQ HVVHQWLDO µVHOOLQJ
SRLQW¶WRDOORZHTXLW\LQYHVWRUVWRWDNHDORQJWHUPYLHZRIWKHDVVHW
7/* LQ WXUQ ZLOO EXLOG RZQ DQG RSHUDWH WKH SURMHFW WR SURYLGH DFFRPPRGDWLRQ
VHUYLFHVWRWKH6WDWHWRHQDEOHLWWRFDUU\RXWSURFHHGLQJVLQUHODWLRQWRWKH&RXQW\
&RXUW RI 9LFWRULD 7KH FRPSOH[ LQFOXGHV FRXUWURRPV MXGJHV¶ FKDPEHUV DQG
RWKHUQRQFRXUWURRPDUHDVVXFKDVMXU\DFFRPPRGDWLRQDQGZLWQHVVIDFLOLWLHV7KH
FRQWUDFW DOVR SURYLGHV VRPH IOH[LELOLW\ WR FRQVWUXFW DQ DGGLWLRQDO HLJKW FRXUWURRPV
E\ILWWLQJRXWOHYHOVDQGRIWKH&RXUWWRZHU
7KHEXLOGLQJVDUHHIIHFWLYHO\OHDVHGWRWKH6WDWHIRU\HDUVIURPWKHFRPSOHWLRQ
RI WKHLU FRQVWUXFWLRQ XQGHU WKH &6$ )ROORZLQJ WHUPLQDWLRQ RI WKH &6$ EXW ZKLOH
WKHVLWHOHDVHLVVWLOOLQRSHUDWLRQWKHVLWHQHHGQRWEHXVHGIRUWKHSURYLVLRQRID
&RXQW\&RXUW,WFDQEHXVHGIRUDQ\SXUSRVHE\ODZH[FHSWXVHVSURKLELWHGXQGHU
WKHUHOHYDQWSODQQLQJVFKHPHV,WLVQRWXQWLOWKH\HDUJURXQGOHDVHH[SLUHVWKDW
WKHEXLOGLQJDQGODQGUHYHUWWRWKH6WDWH
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
5LVNDOORFDWLRQPDWUL[
7KH ULVN DOORFDWLRQ PDWUL[ IRU WKH SURMHFW DV JHQHUDOO\ IRXQG LQ WKH ILQDO EXVLQHVV
FDVH RU SURMHFW FRQWUDFW GRFXPHQWDWLRQ SURYLGHV D KLJKOHYHO RYHUYLHZ RI NH\
SURMHFWULVNVLQFOXGLQJV\VWHPDWLFULVNVDQGKRZWKH\DUHDOORFDWHG
,Q WKH FRQWH[W RI WKH &RXQW\ &RXUW SURMHFW WKH IROORZLQJ VXPPDU\ RI WKH JHQHULF
SURMHFWULVNVLGHQWLILHGWKHSRVVLEOHV\VWHPDWLFULVNV
L 'HVLJQ&RQVWUXFWLRQ ULVN ± UHVWV ZLWK 7/* *RYHUQPHQW PDNHV QR SD\PHQW
GXULQJWKHGHYHORSPHQWSHULRG*RYHUQPHQWGRHVQRWDFFHSWFDSH[FRVWRYHU
UXQVH[FHSWLQVRPHGLVFUHWHFLUFXPVWDQFHV
7KHUHPD\EHDQHOHPHQWRIV\VWHPDWLFULVNVVXFKDVXQH[SHFWHGLQIODWLRQRU
LQFUHDVHG ULVN RI GRZQWXUQ FDXVHG E\ EURDGHU HFRQRPLF IDFWRUV EXW WKHVH
ULVNVOLHZLWKWKHSULYDWHVHFWRU
LL 2SHUDWLQJFRVWV±$FFRPPRGDWLRQFKDUJHVWR'R-DUHIL[HGEDVHGRQXVDJH
RYHUWKHWHUPRIWKH&6$ZLWKWKHDFWXDOFRVWVRIGHOLYHULQJWKHRXWSXWVERUQH
E\7/*)XOOSD\PHQWE\'R-LVEDVHGRQDYDLODELOLW\RIFRXUWURRPVWRDJUHHG
SHUIRUPDQFH VWDQGDUGV DQG DQ DEDWHPHQW UHJLPH DSSOLHV ZKHUH WKHVH
VWDQGDUGVDUHQRWPHW)URPDJRYHUQPHQWSHUVSHFWLYHLWKDVEHHQSURYLGHG
ZLWK D WRWDO IL[HG FRVW IRU WKH IDFLOLW\ RYHU WKH WHUP RI WKH &6$ 0DLQWHQDQFH
DQG,7IXQGLQJDOORFDWLRQVKDYHEHHQLQFOXGHGLQWKHWRWDOFRVW
7KHUH PD\ EH DQ HOHPHQW RI V\VWHPDWLF ULVNV VXFK DV XQH[SHFWHG LQIODWLRQ
XQH[SHFWHGEURDGHUHFRQRPLFIDFWRUVZKLFKPD\LPSDFWRQFRVWVIRU7/*RU
LPSDFWRQWKHGHPDQGIRUVHUYLFHVDQGWKHSD\PHQWVWREHPDGHE\'R-
LLL 'HPDQGULVN±7KHQHZIDFLOLW\ZLOOKDYHFRXUWURRPV$YHUDJHGHPDQGZDV
FRXUWURRPV ZLWK D SHDN RI URRPV 7KH PDMRU GULYHU IRU DGGLWLRQDO
FRXUWURRP XVDJH LV WKH DSSRLQWPHQW RI DGGLWLRQDO MXGJHV HDFK UHTXLULQJ D
FRXUWURRP WR FRQGXFW KHDULQJV %DVHG RQ KLVWRULFDO GDWD LW LV H[SHFWHG WKDW
QHZMXGJHVZLOOEHDSSRLQWHGWRILOOWKHFDSDFLW\RIWKHIDFLOLW\RYHUWKHWHUP$Q
HOHPHQWRIGHPDQGULVNVLWVZLWK7/*DVWKHEDVHIHHLVEDVHGRQPLQLPXP
DJUHHGUHVHUYDWLRQRIFRXUWURRPVHVWDEOLVKHGRQFXUUHQWDYHUDJHGHPDQG,Q
DGGLWLRQWZRH[WUDIORRUVKDYHEHHQDGGHGWRWKHIDFLOLW\WRSURYLGHIRUIXUWKHU
JURZWK7KLVLVDW7/*ULVN±JRYHUQPHQWKDVILUVWRSWLRQRQWKLVVSDFHDWILYH
\HDULQWHUYDOV
7KHUHLVDQHOHPHQWRIVKDULQJRIWKHV\VWHPDWLFULVN+RZLPSRUWDQWWKLVLVFDQ
EHGHWHUPLQHGIURPDQDQDO\VLVRIWKHSD\PHQWPHFKDQLVPDQGWKHSRWHQWLDO
YDULDELOLW\RIWKHSD\PHQWVWUHDPV
LY )LQDQFLDOULVN±ERUQHE\7/*7RPD[LPLVHUHWXUQVWRHTXLW\7/*LVORRNLQJWR
QRQJRYHUQPHQW LQFRPH IRU UHWXUQV 7KH ILQDQFLDO VWUXFWXUH LV DLPHG DW WKH
LVRODWLRQRITXDOLW\FDVKIORZVWUHDPWRDOORZGHEWDWORZPDUJLQV
7KHUH PD\ EH DQ HOHPHQW RI V\VWHPDWLF ULVNV VXFK DV XQH[SHFWHG LQIODWLRQ
DQG XQH[SHFWHG EURDGHU HFRQRPLF IDFWRUV ZKLFK PD\ LPSDFW RQ FRVWV RU
UHYHQXHV IRU 7/* RU GHPDQG ULVN FDXVHG E\ FKDQJHV WR JHQHUDO HFRQRPLF
DFWLYLW\+RZWKLVLVDOORFDWHGZLOOEHGLVFXVVHGODWHU
Y $VVHWUHVLGXDOYDOXHDVVHWRZQHUVKLSULVN±7KHQHZIDFLOLW\LVSXUSRVHEXLOW
IRUWKH&RXQW\&RXUWZLWKDQDGGLWLRQDOWZRIORRUVIRUJURZWKLIUHTXLUHG7KHUH
DUHQRDXWRPDWLFH[WHQVLRQVRSWLRQVWRUHQHZWKHFRQWUDFWEH\RQGWKHH[LVWLQJ
WHUP*RYHUQPHQWKDVWKHIOH[LELOLW\WRUHQHJRWLDWHDQHZWHUPDQGWKHIDFLOLW\
FRXOG EH UHGXQGDQW LQ \HDUV LI FRXUW VHUYLFHV EHFRPH µYLUWXDO¶ RU PRUH
3DUWQHUVKLSV9LFWRULD
'LVFRXQW5DWHV
UHJLRQDOLVHGLQGHOLYHU\)XUWKHUPRUHWKHUHLVQRWUDQVIHUEDFNWRJRYHUQPHQW
DW WKH HQG RI WKH &6$ DQG WKHUHIRUH 7/* LV WDNLQJ VLJQLILFDQW UHVLGXDO YDOXH
ULVN *RYHUQPHQW KDV SXUFKDVHG RXWSXWV VR WKDW WKH ULVNV RI GHSUHFLDWLRQ
WHFKQLFDO REVROHVFHQFH PDLQWHQDQFH DQG UHIXUELVKPHQW RI WKH DVVHWV UHVW
ZLWK7/*
7KHUH LV DQ HOHPHQW RI V\VWHPDWLF ULVN LQ WKDW WKH IDFLOLW\ PD\ QRW KDYH WKH
UHVLGXDO YDOXH DW WHUPLQDWLRQ RI WKH FRQWUDFW WKDW ZDV RULJLQDOO\ HVWLPDWHG E\
7/* LQ WKH ILQDQFLDO VWUXFWXUH WR VXSSRUW WKH SURMHFW ,Q SUDFWLFH PRVW RI WKH
DVVHWUHVLGXDOYDOXHULVNLVOLNHO\WREHRIDQRQV\VWHPDWLFQDWXUH
3URMHFWSD\PHQWPHFKDQLVP
7/*ZLOOUHFHLYHWKHFRXUWVHUYLFHSD\PHQWIURP'R-VHH7DEOH&LQWKHIRUPRI
D IL[HGXVH SD\PHQW FRXUW UHVHUYDWLRQ IHHV VXEMHFW WR D PLQLPXP FRXUW
UHVHUYDWLRQ DPRXQW DQG FRXUW XVDJH IHHV VXEMHFW WR WKH QXPEHU RI FRXUW GD\V
ERRNHG
7DEOH&
&RPSRQHQWVRIIHHVSD\DEOHE\JRYHUQPHQWXQGHUWKH&RXUW
6HUYLFHV$JUHHPHQW
6HUYLFHV
%DVLVRIFKDUJH
$FFRPPRGDWLRQVHUYLFHV
$FFRPPRGDWLRQ
VHUYLFHVFKDUJH
&3,DGMXVWHG
&RXUWXVDJHIHH
&RXUWUHVHUYDWLRQIHH
)L[HGXVHSD\PHQW
1RQFRXUWURRPDUHDIHH
%XLOGLQJVHUYLFHVSD\PHQW
8VDJHIHHVGHSHQGHQWRQGD\V
UHVHUYHGRUERRNHG
)HHVGHSHQGHQWRQFRXUWGD\V
UHVHUYHGEXWPXVWEHDPLQLPXP
RIFRXUWGD\VSHUDQQXP
)L[HGDFFRPPRGDWLRQFKDUJH
$FFRUGLQJWREXLOGLQJVHUYLFHV
VFKHGXOH
&RXUWVHUYLFHV
&RXUWVHUYLFHV
IHH
&3,DGMXVWHG
)L[HGVHUYLFHSD\PHQW
$FFRUGLQJWRVHUYLFHFRQWUDFWV
)ROORZLQJ D UHYLHZ RI WKH SURMHFW SD\PHQW PHFKDQLVP LQ OLJKW RI WKH RYHUDOO
FRQWUDFWXDO DUUDQJHPHQWV DQG LQGLFDWLYH ULVN DOORFDWLRQ WKH IROORZLQJ DGGLWLRQDO
FRPPHQWVDUHPDGH
$FFRPPRGDWLRQVHUYLFHVFKDUJH$6&

&RXUW UHVHUYDWLRQ IHH &5) ± *RYHUQPHQW KDV JXDUDQWHHG DQ DQQXDO
UHVHUYDWLRQRIFRXUWURRPVEDVHGRQFXUUHQWXVDJHOHYHOVLHFRXUWURRP
GD\V7KLVIHHSULPDULO\FRYHUV7/*¶VGHEWDQGPDLQWHQDQFHFRPPLWPHQWV$V
D UHVXOW RI WKLV JXDUDQWHH WKH SRWHQWLDO LPSDFW RQ WKH YDULDELOLW\ RI 7/*¶V
UHYHQXH VWUHDPFDXVHGE\EURDGHUHFRQRPLFIDFWRUVKDVEHHQPLWLJDWHGLH
WKH ULVN WKDW GHPDQGXVDJH ZLOO QRW UHDFK JXDUDQWHHG OHYHOV UHPDLQV ZLWK
JRYHUQPHQW
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD

&RXUW XVDJH IHH &8) ± 7KLV UHSUHVHQWV DSSUR[LPDWHO\ RI JRYHUQPHQW
SD\PHQWVWR7/*'DLO\XVDJHIHHVDUHDJUHHGIRUWKHWHUP7KHULVNWR7/*LV
WKDWJRYHUQPHQWZLOOQRWXVHFRXUWURRPVDWWKHOHYHOWKHSURYLGHUKDVDVVXPHG
)URPDJRYHUQPHQWSHUVSHFWLYHWKLVHOHPHQWRIWKHIHHVWUXFWXUHZLOODVVLVWWR
GULYH FXOWXUDO FKDQJH ZLWKLQ MXGLFLDU\ DV D JUHDWHU XQGHUVWDQGLQJ RI WKH
FRPPHUFLDO LPSOLFDWLRQV RI WKHLU KHDULQJ VFKHGXOHV DQG MXGLFLDO VXSHUYLVLRQ
HPHUJHV $V D UHVXOW RI WKLV DUUDQJHPHQW JRYHUQPHQW KDV WUDQVIHUUHG DQ
HOHPHQWRIGHPDQGXVDJHULVNWRWKHSULYDWHVHFWRURSHUDWRUDQGWKLVVKRXOGEH
UHIOHFWHGLQWKHGLVFRXQWUDWHXVHGWRHYDOXDWHSULYDWHVHFWRUELGV

2WKHU SD\PHQWV ± D IL[HG PRQWKO\ DPRXQW DOORFDWHG RQ D ]RQHG EDVLV IRU
QRQFRXUWURRP DUHDV SOXV D IHH WR FRYHU DFFRPPRGDWLRQ FRVWV VXFK DV
PDLQWHQDQFH DQG UHIXUELVKPHQW &3, DGMXVWPHQW SURWHFWV WKH SURYLGHU IURP
V\VWHPDWLFULVNVLQKHUHQWLQXQH[SHFWHGJHQHUDOSULFHPRYHPHQWV
&RXUWVHUYLFHVIHH&6)

7KLVLQGH[HGSD\PHQWVWUHDPFRYHUVYDULRXV,7DQGVHFXULW\VHUYLFHVDQGDOVR
SURYLGHV IRU ,7 UHIXUELVKPHQW DQG UHSODFHPHQW RYHU WKH WHUP LQLWLDOO\ ILYH
\HDUV 7KH FRQWUDFWV IRU ,7 DQG VHFXULW\ VHUYLFHV SURYLGH IRU &3, LQGH[DWLRQ
7KHUHIRUH WKH VHUYLFH FRQWUDFWRUV DUH SURWHFWHG IURP V\VWHPDWLF SULFH ULVN
EXWDUHH[SRVHGWRVSHFLILFSULFHULVNLHWKHULVNWKDWWKHPRYHPHQWLQWKHLU
FRVWVGRHVQRWWUDFNJHQHUDOLQIODWLRQDU\SULFHFKDQJHV
,Q VXPPDU\ WKH LGHQWLILHG V\VWHPDWLF ULVNV IRU WKH &RXQW\ &RXUW SURMHFW DQG WKHLU
LQGLFDWLYHDOORFDWLRQVDUH
7DEOH&
$OORFDWLRQ RI V\VWHPDWLF ULVNV ± 9LFWRULDQ &RXQW\ &RXUW
SURMHFW
7\SHRIV\VWHPDWLF
ULVN
'HPDQG
3ULYDWH
3XEOLF
»
»
([SODQDWLRQ
7KHEDVHIHHLVEDVHGRQPLQLPXPDJUHHGUHVHUYDWLRQ
7KHUHYHQXHULVNGULYHQE\GHPDQGXVDJHRI
FRXUWURRPVLVVKDUHGEHWZHHQWKHSDUWLHV
,QIODWLRQ
»
%RWKWKHDFFRPPRGDWLRQVHUYLFHFKDUJHDQGWKH&RXUW
VHUYLFHVIHHDUHVXEMHFWWRLQGH[DWLRQ7KHUHIRUH
JRYHUQPHQWLVWDNLQJLQIODWLRQULVN
$VVHWUHVLGXDOYDOXH
DVVHWRZQHUVKLS
»
7KHIDFLOLW\LVSXUSRVHEXLOWDQG7/*KDVDVVXPHG
VLJQLILFDQWUHVLGXDOYDOXHDWWKHHQGRIWKHFRQWUDFWWHUP
7KLVKDVHQDEOHG7/*WRSULFHVHUYLFHVIDYRXUDEO\WR
JRYHUQPHQWRYHUWKHWHUPRIWKHFRQWUDFWEXWDOORFDWHV
VLJQLILFDQWULVNWR7/*UHTXLULQJWKHSURYLGHUWRHLWKHU
UHQHJRWLDWHH[WHQVLRQVSRVW\HDURUILQGDOWHUQDWLYH
XVHIRUWKHIDFLOLW\
,QDGGLWLRQWKHQDWXUHRIGHOLYHU\RIMXVWLFHVHUYLFHVPD\
FKDQJHRYHUWKHQH[W\HDUVZKLFKPD\UHVXOWLQ
WKH&RXQW\&RXUWEHFRPLQJREVROHWHLQLWVGHVLJQHG
VWUXFWXUHDQGWKLVIRUPVSDUWRIWKHRYHUDOODVVHWUHVLGXDO
YDOXHULVNWDNHQE\7/*
3DUWQHUVKLSV9LFWRULD
'LVFRXQW5DWHV
7\SHRIV\VWHPDWLF
ULVN
3ULYDWH
3XEOLF
'RZQWXUQLQEURDGHU
PDUNHW
»
([SODQDWLRQ
$VDUHVXOWRIWKHEDVHSD\PHQWDUUDQJHPHQWV
JRYHUQPHQWLVHIIHFWLYHO\SURYLGLQJDIORRUWRWKHRSHUDWRU
DQGJXDUDQWHHLQJWKHUHYHQXHSURYLGHGWR7/*WRFRYHU
GHEWDQGRSHUDWLQJFRVWVSURYLGHGWKDWWKHRSHUDWRU
PDNHVFRXUWURRPVDYDLODEOH
7KHRSHUDWRU7/*LVWDNLQJWKHULVNWKDWGHPDQGXVDJH
ZLOOPHHWJURZWKH[SHFWDWLRQVVRDVWRJHQHUDWHQRUPDO
HTXLW\UHWXUQV7KHUHIRUHWKHSURYLGHULVDVVXPHGWREH
SUHGRPLQDQWO\WDNLQJGHIDXOWULVN
7KH DQDO\VLV DERYH LGHQWLILHV WKH V\VWHPDWLF ULVNV LQ WKH SURMHFW DQG SURYLGHV
VXIILFLHQWLQIRUPDWLRQZLWKZKLFKWRPRYHWRWKHQH[WVWHSLQWKHPHWKRGRORJ\
3URFHHGWR6WHS
6WHS
$UHSUHGRPLQDQWO\DOOWKHV\VWHPDWLFULVNVLQWKH
SURMHFWERUQHE\WKHSXEOLFVHFWRU"
:KHUH WKHUH DUH V\VWHPDWLF ULVNV LQ D SURMHFW WKH PHWKRGRORJ\ UHTXLUHV DQ
DVVHVVPHQWRIWKHV\VWHPDWLFULVNVDQGFRQVLGHUDWLRQRIZKRZLOOEHDUWKHP
,QWKHFRQWH[WRIWKH&RXQW\&RXUWSURMHFWWKHUHDUHFOHDUO\DQXPEHURIV\VWHPDWLF
ULVNVDQGYDULRXVIRUPVRIVKDULQJEHWZHHQWKHSDUWLHVDVVKRZQLQWKHVXPPDU\
WDEOH7DEOH&
7KH PHWKRGRORJ\ UHTXLUHV DQ DVVHVVPHQW RI ZKHWKHU µSUHGRPLQDQWO\ DOO¶
V\VWHPDWLFULVNVDUHERUQHE\WKHSXEOLFVHFWRU7KH&RXQW\&RXUWSURMHFWLVIRUD
\HDU WHUP 2YHU WKDW SHULRG WKH SDUWLHV PD\ EH H[SRVHG WR XQH[SHFWHG
HFRQRPLF HYHQWV ZKLFK PD\ LPSDFW XSRQ WKH SURMHFW FRVWV UHYHQXHV DQG
XQGHUO\LQJ DVVHW YDOXHV 7KH SULPDU\ V\VWHPDWLF IDFWRU ZKLFK PD\ FDXVH
VLJQLILFDQW YDULDELOLW\ LQ WKH FDVK IORZV RI WKH SURMHFW LV WKH OHYHO RI GHPDQG ULVN
FDXVHGE\IDFWRUVLQWKHEURDGHUHFRQRP\7KHSULYDWHVHFWRURSHUDWRULVVKDULQJ
XVDJHGHPDQG ULVN VXIILFLHQWO\ WR VXJJHVW WKDW WKH SXEOLF VHFWRU LV QRW EHDULQJ
SUHGRPLQDQWO\DOOV\VWHPDWLFULVNV
([DFWO\ZKDWSURSRUWLRQRIV\VWHPDWLFULVNVLVEHLQJERUQHE\WKHSXEOLFDQGSULYDWH
VHFWRUVZLOOEHGLVFXVVHGODWHU$WWKLVVWDJHLWLVHYLGHQWWKDWWKHSXEOLFVHFWRULVQRW
EHDULQJSUHGRPLQDQWO\DOOV\VWHPDWLFULVNVDQGZHVKRXOGPRYHIRUZDUGWR6WHS
RIWKHPHWKRGRORJ\
3URFHHGWR6WHS
6WHS
,GHQWLI\SURMHFWUDWH
:KHUH D PDWHULDO OHYHO RI V\VWHPDWLF ULVN ZLOO EH WUDQVIHUUHG WR WKH SULYDWH VHFWRU
WKHQ WKH PHWKRGRORJ\ UHTXLUHV WKDW D SURMHFW UDWH QHHGV WR EH GHWHUPLQHG WKDW
UHIOHFWVWKHV\VWHPDWLFULVNRIWKHSURMHFWLWVHOILUUHVSHFWLYHRIZKRXQGHUWDNHVLW
'HWHUPLQLQJWKHSURMHFWUDWH
7R DVVLVW WKH LPSOHPHQWDWLRQ RI WKH PHWKRGRORJ\ D QXPEHU RI EURDG µULVN EDQGV¶
ZLWKDVVRFLDWHGULVNSUHPLXPVDUHLQFOXGHGLQ6HFWLRQ
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
7R LQLWLDOO\ FDOFXODWH D SURMHFW UDWH LW LV QHFHVVDU\ WR FRQVLGHU WKH W\SH RI SURMHFW
EHLQJ XQGHUWDNHQ DQG LGHQWLI\ WKH DSSURSULDWH ULVN EDQGLQJ 7KH &RXQW\ &RXUW
SURMHFW HVVHQWLDOO\ LQYROYHV WKH SURYLVLRQ RI MXVWLFH IDFLOLWLHV DV GLVWLQFW IURP
DGPLQLVWUDWLRQ 7KH UHVSRQVLELOLW\ IRU WKH GHOLYHU\ RI FRUH MXGLFLDO VHUYLFHV LV WR
UHPDLQZLWKWKHJRYHUQPHQW
8VLQJ WKH WDEOH RQ ULVN EDQGV WKH LQGLFDWLYH DVVHW ULVN OHYHO IRU D SURMHFW OLNH WKH
&RXQW\ &RXUW ZRXOG EH ORZ EDVHG RQ WKH HPSKDVLV RQ SURSHUW\IDFLOLW\
PDQDJHPHQWLQWKHSURMHFW7KLVDVVHVVPHQWDVVXPHVWKDWWKH&RXQW\&RXUWKDV
VXIILFLHQW DOWHUQDWLYH XVHV IRU EURDGHU FRPPHUFLDO XVDJH ,I LW ZHUH DVVHVVHG WKDW
WKHIDFLOLW\ZDVVRSXUSRVHEXLOWWKDWLWVDOWHUQDWLYHXVHVZHUHOLPLWHGWKHQDKLJKHU
FODVVLILFDWLRQPD\EHDSSURSULDWH([SHUWSURSHUW\JXLGDQFHPD\EHDSSURSULDWHLQ
RUGHUWRHQDEOHSUDFWLWLRQHUVWRKDYHDIXOO\LQIRUPHGYLHZ
&DOFXODWLRQRIWKHSURMHFWUDWH
$SSO\LQJWKHEURDGEDQGVLQGLFDWHGLQWKHWDEOHWKHDSSURSULDWHSURMHFWUDWHZRXOG
EHFDOFXODWHGDVIROORZV

5ILVWKHULVNIUHHUDWH QRPLQDORUUHDO

bDLVWKHDVVHWEHWD EDVHGRQORZULVNSURILOHUDWLQJRISURMHFW

0DUNHWULVNSUHPLXP5P±5I EDVHGRQDFFHSWHGPDUNHWSUDFWLFH
7KHUHIRUH WKH SURMHFW UDWH 5D IRU WKH SXUSRVH RI HVWDEOLVKLQJ D FRVW RI FDSLWDO
HQFDSVXODWLQJDOOV\VWHPDWLFULVNVLV
5D 5IbD5P±5I
3URMHFWUDWH
[
UHDO
RUQRPLQDOLH±WKHUHTXLUHGUHWXUQRQDVVHWV
2Q WKLV EDVLV WKH V\VWHPDWLF ULVN SUHPLXP IRU WKLV SDUWLFXODU SURMHFW LV QRPLQDO ± WKH GLIIHUHQFH EHWZHHQ WKH SURMHFW UDWH DQG WKH ULVNIUHH
UDWH
3OHDVHQRWHWKDWWKHQHHGIRUDPRUHSUHFLVHSURMHFWVSHFLILFGLVFRXQWUDWHKDVQRW
EHHQFRQVLGHUHGIRUWKHSXUSRVHRIWKLVLOOXVWUDWLYHFDVHVWXG\
3URFHHGWR6WHS
6WHS
$UHSUHGRPLQDQWO\DOOWKHV\VWHPDWLFULVNVLQWKH
SURMHFWERUQHE\WKHSULYDWHVHFWRU"
:KHUHSUHGRPLQDQWO\DOOWKHV\VWHPDWLFULVNVLGHQWLILHGLQ6WHSDUHWUDQVIHUUHGE\
WKH SXEOLF VHFWRU WR WKH SULYDWH VHFWRU WKHQ WKH DSSURSULDWH GLVFRXQW UDWH LV WKH
SURMHFWUDWHDQGWKHUHPDLQLQJVWHSVLQWKHPHWKRGRORJ\DUHQRWUHTXLUHG7KLVUDWH
DSSOLHVWRWKHHYDOXDWLRQRIDQ\SULYDWHVHFWRUSURSRVDOVIRUWKDWSURMHFWZKHUHWKH
SXEOLFVHFWRUKDVWUDQVIHUUHGRXWSUHGRPLQDQWO\DOOWKHV\VWHPDWLFULVNV
,QWKHFRQWH[WRIWKH&RXQW\&RXUWSURMHFWWKHUHDUHFOHDUO\DQXPEHURIV\VWHPDWLF
ULVNV HYLGHQW LQ WKH SURMHFW ZLWK YDULRXV IRUPV RI VKDULQJ EHWZHHQ WKH SDUWLHV DV
VKRZQLQ7DEOH&
3DUWQHUVKLSV9LFWRULD
'LVFRXQW5DWHV
7KH PHWKRGRORJ\ UHTXLUHV DQ DVVHVVPHQW RI ZKHWKHU µSUHGRPLQDQWO\ DOO¶
V\VWHPDWLFULVNVDUHERUQHE\WKHSULYDWHVHFWRU7KH&RXQW\&RXUWSURMHFWLVIRUD
\HDU WHUP 2YHU WKDW SHULRG WKH SDUWLHV PD\ EH H[SRVHG WR XQH[SHFWHG
HFRQRPLFHYHQWVZKLFKPD\LPSDFWRQWKHSURMHFWFRVWVUHYHQXHVDQGXQGHUO\LQJ
DVVHWYDOXHV7KHSULPDU\V\VWHPDWLFIDFWRUZKLFKPD\FDXVHVLJQLILFDQWYDULDELOLW\
LQWKHFDVKIORZVRIWKHSURMHFWLVWKHOHYHORIGHPDQGULVNFDXVHGE\IDFWRUVLQWKH
EURDGHU HFRQRP\ 7KH SXEOLF VHFWRU LV SURYLGLQJ FHUWDLQW\ IRU D PLQLPXP OHYHO RI
GHPDQGEXWWKHSULYDWHVHFWRURSHUDWRULVVKDULQJXVDJHGHPDQGULVNVXIILFLHQWO\WR
VXJJHVWWKDWWKHSULYDWHVHFWRULVQRWEHDULQJSUHGRPLQDQWO\DOOV\VWHPDWLFULVNV
([DFWO\ZKDWSURSRUWLRQRIV\VWHPDWLFULVNVLVEHLQJERUQHE\WKHSXEOLFDQGSULYDWH
VHFWRUVZLOOEHGLVFXVVHGLQWKHQH[WVWHS:KHUHWKHUHLVVKDULQJRIV\VWHPDWLFULVN
EHWZHHQWKHSDUWLHVWKHPHWKRGRORJ\UHTXLUHVDQDSSRUWLRQPHQWRIWKHV\VWHPDWLF
ULVNSUHPLXP
$W WKLV VWDJH LW LV HYLGHQW WKDW WKH SULYDWH VHFWRU LV QRW EHDULQJ SUHGRPLQDQWO\ DOO
V\VWHPDWLFULVNVDQGZHVKRXOGPRYHIRUZDUGWR6WHSRIWKHPHWKRGRORJ\
3URFHHGWR6WHS
6WHS
(YDOXDWHWKHSURSRUWLRQRIV\VWHPDWLFULVNWUDQVIHUUHG
E\WKHSXEOLFVHFWRU
%\ WKHLU YHU\ QDWXUH 3DUWQHUVKLSV 9LFWRULD SURMHFWV ZLOO LQYROYH VRPH IRUP RI ULVN
VKDULQJ EHWZHHQ WKH SXEOLF DQG SULYDWH VHFWRU (IILFLHQW FRQWUDFWLQJ UHTXLUHV WKDW
ULVNLVDOORFDWHGWRWKHSDUW\ZKLFKFDQPDQDJHWKHULVNDWWKHORZHVWFRVW
7KHNH\WDVNLVWRDSSRUWLRQWKHV\VWHPDWLFULVNSUHPLXPEHWZHHQWKHSDUWLHVWRWKH
SURMHFWEDVHGRQWKHOHYHOVRIV\VWHPDWLFULVNVKDULQJ
,GHQWLI\LQJWKHSURSRUWLRQRIV\VWHPDWLFULVN
,IWKH3DUWQHUVKLSV9LFWRULDFRQWUDFWGRHVQRWWUDQVIHUSUHGRPLQDQWO\DOOV\VWHPDWLF
ULVNWRHLWKHUWKHSXEOLFRUSULYDWHVHFWRUWKHQWKHDSSURSULDWHGLVFRXQWUDWHWRXVH
LQ HYDOXDWLQJ ELGV ZLOO OLH VRPHZKHUH EHWZHHQ WKH 36& ULVNIUHH UDWH DQG WKH
SURMHFWUDWH
%DVHG RQ DQDO\VLV DQG GLVFXVVLRQ WKHUH LV FOHDUO\ VRPH V\VWHPDWLF ULVN WUDQVIHU
IURP WKH JRYHUQPHQW WR WKH SULYDWH VHFWRU +RZ V\VWHPDWLF ULVN LV DOORFDWHG
EHWZHHQ WKH SXEOLF DQG SULYDWH VHFWRUV LV IXQGDPHQWDO WR GHWHUPLQLQJ WKH
DSSURSULDWH GLVFRXQW UDWH WR DGRSW IRU WKH HYDOXDWLRQ RI SULYDWH VHFWRU ELGV 7KH
FULWLFDOTXHVWLRQLVKRZPXFKRYHUDOOULVNKDVEHHQWUDQVIHUUHGDQGZKDWSURSRUWLRQ
RI WKH V\VWHPDWLF ULVN SUHPLXP VKRXOG WKH SULYDWH VHFWRU EH DOORFDWHG WR
FRPSHQVDWHWKHPIRUWDNLQJRQWKLVULVN"
7KH NH\ WHVW LV WR HVWDEOLVK ZKLFK SDUW\ ZLOO EHDU DQ\ YDULDWLRQ LQ FDVK IORZ DQG
UHWXUQDVDUHVXOWRIWKHV\VWHPDWLFULVNDOORFDWLRQ$VWKHPHWKRGRORJ\LQGLFDWHVWR
LGHQWLI\ WKH SURSRUWLRQ RI V\VWHPDWLF ULVN ERUQH E\ WKH SDUWLHV DQG DOORFDWH WKH
V\VWHPDWLFULVNSUHPLXPDVLPSOHWZRVWDJHSURFHVVLVUHTXLUHG
L $VVHVVWKHUHODWLYHLPSRUWDQFHRIHDFKRIWKHV\VWHPDWLFULVNV
LL $VVHVVKRZWKHULVNLVDOORFDWHGEHWZHHQWKHSDUWLHV
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
7RDVVLVWSUDFWLWLRQHUVWRHVWLPDWHWKHDPRXQWRIV\VWHPDWLFULVNWUDQVIHUUHGWRWKH
SULYDWHVHFWRUDQGWKHUHIRUHWKHV\VWHPDWLFULVNSUHPLXPWRDGGWRWKHULVNIUHHUDWH
VR DV WR DUULYH DW WKH HYDOXDWLRQ GLVFRXQW UDWH D WDEOH 7DEOH & KDV EHHQ
DVVHPEOHGDWWKHHQGRIWKLVDSSHQGL[
%DVHG RQ WKH DSSURDFK LQ WKH PHWKRGRORJ\ WKH IROORZLQJ FRPPHQWV RQ WKH
V\VWHPDWLF ULVNV LGHQWLILHG LQ WKH &RXQW\ &RXUW SURMHFW DUH SURYLGHG WR DVVLVW LQ
FRPSOHWLQJ WKH WDEOH )RU WKH SXUSRVHV RI WKH LOOXVWUDWLRQ DVVXPH WKDW IRUHFDVW
RSHUDWLQJ UHYHQXH IRU WKH IDFLOLW\ LV PLOOLRQ SHU DQQXP H[FOXGLQJ DQ\ PLQRU
SRWHQWLDO WKLUGSDUW\ UHYHQXH DQG IRUHFDVW RSHUDWLQJ FRVWV DUH PLOOLRQ SHU
DQQXPLQFOXGLQJGHEWVHUYLFHFRVWV
L 'HPDQGULVN

$VVHVVLQJ UHODWLYH LPSRUWDQFH 7KH OHQJWK RI WKH VHUYLFH DJUHHPHQW LV \HDUV $ FRQWUDFW WHUP WKDW ORQJ PD\ SUHVHQW GLIILFXOWLHV LQ IRUHFDVWLQJ
GHPDQGXVDJHUHTXLUHPHQWV
7KH SURSRUWLRQ RI IL[HG FRVWV WR IRUHFDVW UHYHQXH LV PP ZKLFK
SRWHQWLDOO\ H[SRVHV WKH SULYDWH RSHUDWRU WR VLJQLILFDQW YDULDELOLW\ RI FDVK IORZ
IURPFKDQJHVLQWKHEURDGHUHFRQRP\7KHUHIRUHLWLVUHDVRQDEOHWRFRQFOXGH
WKDWWKHLPSRUWDQFHRIGHPDQGWRFRYHUWKHVHIL[HGFRVWVLVKLJK

$VVHVVLQJDOORFDWLRQ*RYHUQPHQWLVSURYLGLQJRQHIORRUXQGHUGHPDQGULVN
YLDWKHFRXUWUHVHUYDWLRQIHHV+HQFH7/*KDVDGHJUHHRIUHYHQXHFHUWDLQW\
DQG WKHUHIRUH 'R- LV UHWDLQLQJ D SURSRUWLRQ RI GHPDQG ULVN DV LW ZLOO KDYH WR
SD\DIHHUHJDUGOHVVRIDFWXDOXVDJH
2QWKHRWKHUKDQG7/*KDVDWULVNXSWRRILWVUHYHQXHVWUHDPLIDFWXDO
XVDJH LV OHVV WKDQ SODQQHG DVVXPHG RU SURMHFWHG 2Q WKH EDVLV WKDW
JRYHUQPHQW LV SURYLGLQJ D JXDUDQWHHG IORRU DQG WKDW HTXLW\ UHWXUQ LV DW
VLJQLILFDQW ULVN GHSHQGLQJ RQ JURZWK DVVXPSWLRQV WKH ULVN RI GHPDQG LV
DVVHVVHGDVVKDUHGEHWZHHQWKHSDUWLHV
LL ,QIODWLRQULVN

$VVHVVLQJ UHODWLYH LPSRUWDQFH )RU D FRQWUDFW DUUDQJHPHQW ZLWK D WHUP RI
\HDUVWKHSRWHQWLDOFDVKIORZLPSDFWVRILQIODWLRQFRXOGEHVLJQLILFDQW7KH
LPSRUWDQFH RI LQIODWLRQ ULVN LV DVVHVVHG DV PHGLXP RQ WKH EDVLV WKDW DW OHDVW
RIWKHIL[HGRSHUDWLQJFRVWVZRXOGUHODWHWRGHEWVHUYLFHFRVWVDQGLWLV
DVVXPHG WKDW WKH SULYDWH RSHUDWRU ZRXOG HQWHU LQWR ORQJWHUP KHGJLQJ
DUUDQJHPHQWVWRPLWLJDWHWKHLPSDFWRIYDULDELOLW\RQGHEWVHUYLFHREOLJDWLRQV

$VVHVVLQJ DOORFDWLRQ 7KH JRYHUQPHQW KDV SUHGRPLQDQWO\ UHWDLQHG WKH
V\VWHPDWLF ULVNV RI XQH[SHFWHG LQIODWLRQDU\ LPSDFWV E\ DJUHHLQJ WR KDYH
SD\PHQW REOLJDWLRQV WR 7/* LQGH[HG DW &3, *RYHUQPHQW KDV KRZHYHU
WUDQVIHUUHG WKH LQLWLDO SRWHQWLDO V\VWHPDWLF IDFWRUV DVVRFLDWHG ZLWK SODQQLQJ
GHVLJQ DQG FRQVWUXFWLRQ RI WKH IDFLOLW\ FDXVHG E\ XQH[SHFWHG HFRQRPLF
HYHQWV LPSDFWLQJ XSRQ WLPH DQG FRVW RYHUUXQV WR WKH SULYDWH VHFWRU DQG DQ\
FRVWV HJ LQVXUDQFH KHGJLQJ HWF DVVRFLDWHG ZLWK WKH SRWHQWLDOOLNHOLKRRGRI
VXFK HYHQWV ZRXOG KDYH EHHQ LQFRUSRUDWHG LQ WKH SULYDWH VHFWRU FDVK IORZV
WKHFKDUJHWRJRYHUQPHQW
3DUWQHUVKLSV9LFWRULD
LLL
'LVFRXQW5DWHV
$VVHWUHVLGXDOYDOXHULVN

$VVHVVLQJ UHODWLYH LPSRUWDQFH 7KH FRQWUDFW WHUP RI \HDUV UHSUHVHQWV
DSSUR[LPDWHO\RIWKHHVWLPDWHGXVHIXOOLIHRIWKH&RXQW\&RXUWIDFLOLW\7KH
LPSRUWDQFH RI DVVHW UHVLGXDO YDOXH LV DVVHVVHG DV PHGLXP EDVHG RQ WKH
SUHVHQW YDOXH RI WKH IDFLOLW\ LQ \HDU LH FDSLWDO FRVWV RI PLOOLRQ
GHSUHFLDWHGRQDVWUDLJKWOLQHEDVLVRYHUDQ\HDUXVHIXOHFRQRPLFOLIHZRXOG
KDYHDFRQVWDQWGROODUVYDOXHLQ\HDURIPLOOLRQ7KHSUHVHQWYDOXHRI
WKLVDPRXQWDWWKHSURMHFWUDWHZRXOGEHDSSUR[LPDWHO\PLOOLRQRURI
WKH RULJLQDO FDSLWDO FRVW 7KHUHIRUH WKH SRWHQWLDO LPSRUWDQFH RI EURDGHU
HFRQRPLF IDFWRUV LPSDFWLQJ RQ DVVHW YDOXHV PD\ EH VLJQLILFDQW WR WKH SULYDWH
RSHUDWRU GHSHQGLQJ RQ ZKLFK IDFWRUV ZHUH LQFRUSRUDWHG LQWR VHUYLFH SULFLQJ
DOWHUQDWLYHXVHRSWLRQVHWF

$VVHVVLQJ DOORFDWLRQ 7KH UHVLGXDO YDOXH ULVN RI WKH IDFLOLW\ KDV EHHQ
WUDQVIHUUHG WR WKH SULYDWH VHFWRU RZQHU 7/* RQ WKH EDVLV WKDW WKHUH LV QR
WUDQVIHU WR JRYHUQPHQW DW WKH HQG RI WKH FRQWUDFW WHUP 7KH DVVHW PD\ QRW
UHDGLO\ KDYH DOWHUQDWLYH XVDJH LI 'R- GRHV QRW ZLVK WR HQWHU D QHZ FRQWUDFW
DQG WKH RYHUDOO VLWH OHDVH LV IRU D WHUP RI \HDUV 2Q WKLV EDVLV WKH DVVHW
UHVLGXDOYDOXHULVNLVZLWKWKHSULYDWHVHFWRURSHUDWRU
LY

5LVNRIGRZQWXUQLQWKHEURDGHUHFRQRP\
$VVHVVLQJ UHODWLYH LPSRUWDQFH (YHQWV WKDW PD\ RFFXU LQ WKH EURDGHU
HFRQRP\ FRXOG LQFUHDVH WKH ULVN RI LQVROYHQF\ DQG DGYHUVHO\ DIIHFW VXSSOLHUV
DQGRU FXVWRPHUV RI WKH SULYDWH VHFWRU RSHUDWRU SRWHQWLDOO\ LPSDFWLQJ RQ WKH
SULYDWHVHFWRU¶VDELOLW\WRFRQWLQXHWRSURYLGHWKHVHUYLFHIRUZKLFKLWKDVEHHQ
FRQWUDFWHG+RZHYHUJLYHQWKHFRPPHUFLDODUUDQJHPHQWVLQWKH&RXQW\&RXUW
SURMHFWWKHLPSRUWDQFHRIVXFKHYHQWVWRWKHSULYDWHRSHUDWRULVQRWOLNHO\WREH
PDMRU
7KH RSHUDWRU LV QRW GHSHQGHQW RQ D SDUWLFXODU FXVWRPHU EDVH RXWVLGH 'R-
PLWLJDWLQJ WKH YDULDELOLW\ RI WKH FDVK IORZV )XUWKHUPRUH DOWHUQDWLYH VXSSOLHUV
DUHDYDLODEOHLQWKHPDUNHWVKRXOGWKHFXUUHQWVXSSOLHUVWR7/*EHDIIHFWHGE\
EURDGHU HFRQRPLF HYHQWV 7KHUHIRUH WKH RYHUDOO OHYHO RI LPSRUWDQFH RI D
JHQHUDOHFRQRPLFGRZQWXUQLVDVVHVVHGDVORZ

$VVHVVLQJDOORFDWLRQ*RYHUQPHQWLVJXDUDQWHHLQJDFHUWDLQOHYHORIGHPDQG
IRU FRXUWURRPV 7KH UHYHQXH IURP WKLV ZLOO FRYHU GHEW DQG RSHUDWLQJ FRVW
FRPPLWPHQWV 7/* HTXLW\ UHWXUQV DUH EDVHG RQ WKH SURYLGHU¶V JURZWK
H[SHFWDWLRQVZKLFKDUHDIXQFWLRQRIEURDGHUHFRQRPLFHYHQWVDQGWKHUHIRUH
WKHULVNRIHFRQRPLFGRZQWXUQVLVDVVHVVHGDVSUHGRPLQDQWO\ZLWKWKHSULYDWH
VHFWRURSHUDWRU7/*
%DVHG RQ WKH DQDO\VLV LQ 6WHS DQG WKH FRPPHQWDU\ DERYH 7DEOH&
VXPPDULVHV WKH SURSRUWLRQ RI V\VWHPDWLF ULVN ERUQH E\ JRYHUQPHQW DQG WKH
SURSRUWLRQ RI WKH V\VWHPDWLF ULVN SUHPLXP WR EH WUDQVIHUUHG WR WKH SULYDWH
VHFWRUDVFRPSHQVDWLRQIRUWDNLQJVRPHRIWKHV\VWHPDWLFULVNV
'LVFRXQW5DWHV
3DUWQHUVKLSV9LFWRULD
7DEOH&
9LFWRULDQ &RXQW\ &RXUW H[DPSOH SURMHFW ± 3URSRUWLRQV RI
V\VWHPDWLFULVNWUDQVIHUUHGWRWKHSULYDWHVHFWRU
6\VWHPDWLFULVNW\SH
:HLJKWLQJ
6FDOH±
(VWLPDWHG
SRUWLRQRI
SURMHFWULVN
SUHPLXP
%DVHGRQ
UHODWLYH
LPSRUWDQFH
3URMHFWULVN
SUHPLXP
SHU
6WHS
$OORFDWLRQRIULVN
EDVHGRQ6WHS
DQDO\VLV
3URMHFWULVN
SUHPLXP
WUDQVIHUUHGWR
SULYDWHVHFWRU
3XEOLF
3ULYDWH
'HPDQG
,QIODWLRQ
$VVHWUHVLGXDOYDOXH
'HIDXOWLQVROYHQF\
727$/
6FDOH±+LJKLPSRUWDQFHEDVHGRQVLJQLILFDQFHLPSDFWRQSURMHFWFDVKIORZRUUHWXUQV6FDOH±
0HGLXP LPSRUWDQFH EDVHG RQ VLJQLILFDQFHLPSDFW RQ SURMHFW FDVK IORZ RU UHWXUQV 6FDOH ± /RZ
LPSRUWDQFHEDVHGRQVLJQLILFDQFHLPSDFWRQSURMHFWFDVKIORZRUUHWXUQV
(VWLPDWHGSRUWLRQRISURMHFWULVNSUHPLXPLVFDOFXODWHGDVLQWKHIROORZLQJH[DPSOH
6\VWHPDWLFULVNW\SH
'HPDQG
:HLJKWLQJ
7RWDORIZHLJKWV
3HUFHQWDOORFDWLRQRIGHPDQGULVN
7RWDOSURMHFWULVNSUHPLXP
'HPDQGULVNSHUFHQW[7RWDOSURMHFWULVNSUHPLXP
&DOFXODWLRQRIHYDOXDWLRQGLVFRXQWUDWH
2Q WKH EDVLV RI WKLV DQDO\VLV LQ DJJUHJDWH WKH SXEOLF VHFWRU KDV WUDQVIHUUHG WKH
PDMRULW\ RI WKH V\VWHPDWLF ULVN IDFWRUV WR WKH SULYDWH VHFWRU 7KH V\VWHPDWLF ULVN
SUHPLXP IRU D SURMHFW OLNH WKH &RXQW\ &RXUW ZDV HVWLPDWHG DW SHUFHQWDJH
SRLQWV DQG RI WKLV SHUFHQWDJH SRLQWV DUH FDUULHG E\ WKH RSHUDWRU 7KHUHIRUH
WKHDSSURSULDWHGLVFRXQWUDWHIRUWKHSXUSRVHRIHYDOXDWLQJSULYDWHVHFWRUELGVZLWK
WKHFRQWUDFWXDOREOLJDWLRQVVSHFLILHGDVDERYHZRXOGEHLHULVNIUHHUDWHRI
SOXV WKH SURSRUWLRQDWH VKDUH RI WKH V\VWHPDWLF ULVN SUHPLXP RI
SHUFHQWDJHSRLQWV
3DUWQHUVKLSV9LFWRULD
'LVFRXQW5DWHV
%UHDOH\50H\HUV63ULQFLSOHVRI&RUSRUDWH)LQDQFHVL[WKHGLWLRQ
,UZLQ0F*UDZ+LOO%RVWRQ
&RSHODQG7(:HVWRQ-))LQDQFLDO7KHRU\DQG&RUSRUDWH3ROLF\WKLUGHGLWLRQ
$GGLVRQ:HVOH\
)LQQ)*UD\6µ,VVXHVLQ(VWLPDWLQJWKH&RVWRI&DSLWDOLQWKH3XEOLF6HFWRU¶
XQSXEOLVKHGGUDIW-XO\
0F.LQVH\&RPSDQ\,QF&RSHODQG7.ROOHU70XUULQ-9DOXDWLRQ
0HDVXULQJDQG0DQDJLQJWKH9DOXHRI&RPSDQLHVWKLUGHGLWLRQ-RKQ:LOH\
6RQV1HZ<RUN
2IILFHU5µ7KHFRVWRIFDSLWDOIRUWKH6WDWHRI9LFWRULDDV\QRSVLV¶3DSHU
FRPPLVVLRQHGE\WKH'HSDUWPHQWRI7UHDVXU\DQG)LQDQFH0D\
2IILFHU5µ6XSSOHPHQWDU\LVVXHVLQUHODWLRQWRWKHFRVWRIFDSLWDOIRUWKH6WDWHRI
9LFWRULD¶3DSHUFRPPLVVLRQHGE\WKH'HSDUWPHQWRI7UHDVXU\DQG)LQDQFH-XO\
3DUWQHUVKLSV9LFWRULD3UDFWLWLRQHUV¶*XLGH'HSDUWPHQWRI7UHDVXU\DQG)LQDQFH
9LFWRULD-XQH
3DUWQHUVKLSV9LFWRULD3XEOLF6HFWRU&RPSDUDWRU7HFKQLFDO1RWH'HSDUWPHQWRI
7UHDVXU\DQG)LQDQFH9LFWRULD-XQH
Partnerships VictoriaTechnical Note - Use of Discount Rates in Partnerships Victoria Projects www.partnerships.vic.gov.au

Download Report

Use of Discount Rates in the Partnerships Victoria Process

Paperzz.com

Your Paperzz