“Where do we obtain the default risk spread premiums?” asked an interested listener during last week’s BVR teleconference with Jim Alerding, James Ewart, and Bob Shortle on “Companies in Distress: Valuing the Impaired and Currently Unprofitable.” The presenters provided two quick, easy, inexpensive sources: First, check out Professor Aswath Damodaran’s website—e.g., the page listing Country Default Spreads and Risk Premiums (last updated Jan. 2009). Second, Morningstar regularly posts risk ratings and premiums at its website.
BVR has just posted the article, “A Timely New Study of Bankruptcy Prediction Models from Morningstar,” by Morningstar’s James Harrington and the Oct. 2009 BVUpdate™ as a third free valuation resource. Click here to download the article and more (sort the page by date and this latest download should come up first).
Where are the data on restructuring costs? Unfortunately, these sources are not so easy to come by. “These costs can vary a great deal,” says Shortle. He suggests calling bankruptcy attorneys in your area to ask their experience. The company’s loan documents should identify covenant waivers and forbearance costs. “The key is to indentify all parties to the bankruptcy proceedings, and all costs that the company would not have incurred if not distressed.” For the complete teleconference, including, e-transcript, audio CD, and ancillary reading materials, click here.
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