I don't actually get the calculation for secondaries. How does buying at 102 give me a discount of 3 points against an NAV of 97?
"For example, a deal that prices nominally above par — for example, 102 — may get three points of discount from the portfolio’s NAV (which may be marked at 97) and another four points from the two quarters of post-reference date cash flows that have accrued to the buyers’ benefit. This brings the indirect discount to a total of seven points, and an effective price of 95, on a deal that may have a headline price of 102."
First, the headline. The reported number is that the loan book sold at a 2% premium to NAV. That reads as though the buyer paid 100 × 1.02 = 102 for the book.
But look at what the 102 is a percentage of. The manager marks the portfolio at 97, a 3% discount to par. The 2% premium goes on top of that mark, not on top of par: 97 × 1.02 = 98.9. So the buyer pays a premium to NAV and is still nearly 1 point below face.
Second, the reference date. The sale is struck off the 31 December NAV but the deal closes six months later. Everything the portfolio earns in between belongs to the buyer, while the price stays fixed at the December mark. That's roughly 4 points the seller hands over.
I don't actually get the calculation for secondaries. How does buying at 102 give me a discount of 3 points against an NAV of 97?
"For example, a deal that prices nominally above par — for example, 102 — may get three points of discount from the portfolio’s NAV (which may be marked at 97) and another four points from the two quarters of post-reference date cash flows that have accrued to the buyers’ benefit. This brings the indirect discount to a total of seven points, and an effective price of 95, on a deal that may have a headline price of 102."
Hi Russ,
You can think about this in two steps.
First, the headline. The reported number is that the loan book sold at a 2% premium to NAV. That reads as though the buyer paid 100 × 1.02 = 102 for the book.
But look at what the 102 is a percentage of. The manager marks the portfolio at 97, a 3% discount to par. The 2% premium goes on top of that mark, not on top of par: 97 × 1.02 = 98.9. So the buyer pays a premium to NAV and is still nearly 1 point below face.
Second, the reference date. The sale is struck off the 31 December NAV but the deal closes six months later. Everything the portfolio earns in between belongs to the buyer, while the price stays fixed at the December mark. That's roughly 4 points the seller hands over.
Hey! Thanks for the reply. That makes better sense now. 102% is on NAV not "par 100".