Private Debt Valuation: Selecting a Valuation Method
Private credit has grown rapidly from a specialist financing segment into a significant global asset class. Yet the limited availability of observable market prices, the bespoke nature of private debt instruments and the absence of active secondary markets continue to make valuation particularly challenging.
This IVSC Perspectives Paper, developed by the IVSC Financial Instruments Board, examines current market practices for selecting an appropriate valuation method for private debt instruments, with a particular focus on direct lending. It outlines the factors valuers should consider when assessing the issuer, the instrument and the transaction; evaluating financial and credit performance; and determining enterprise value and debt coverage.
The paper also considers how the principal valuation approaches recognised under IVS may be applied in practice. It discusses the use of market evidence and calibration, discounted cash flow and yield analysis for performing debt, and net recovery or liquidation methods where an issuer is distressed, in default or no longer a going concern.
At a time of growing regulatory and investor scrutiny, the paper highlights the importance of a disciplined, transparent and consistently applied framework. Such an approach can help improve the reliability and comparability of fair value assessments and strengthen stakeholder confidence.
This is the first paper in a planned series exploring private debt valuation. IVSC welcomes feedback from market participants, valuers, investors, auditors, regulators and other stakeholders to help inform future work.