Lending Against Cash Flows, Contracts and Hard Assets
Julian R. Sterling
Four Excel workbooks. The borrowing base of Appendix C running live off a loan tape of
1,880 contracts. The Meridian transaction of Chapter 22 from screening to the stressed outcome,
with the run-off modelled rather than asserted. The Appendix E trigger grid and the Appendix G
stress framework as calculators — and the exercise the book never performs, running one against the
other. And the six appendix checklists as working documents. 78 figures are checked against the book,
and all 78 reproduce.
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Everything described below is inside it, with the read-me.
The four workbooks
Chapter 5 and Appendix C
The borrowing base and the advance rate
Appendix C closes with an instruction: every line should be produced from the loan tape by the
servicer and independently verifiable by the lender from the same tape. This workbook does exactly that.
A synthetic tape of 1,880 equipment finance contracts sits behind it, carrying obligor, product,
introducer, channel, jurisdiction, balance, tenor, delinquency, deposit and security registration. Every
eligibility exclusion and every concentration excess on the borrowing base is a formula over that tape,
not a number someone typed. Change the maximum tenor, the minimum deposit or the excluded introducer and
the whole calculation moves. On this tape the criteria exclude 17 per cent of the pool, which is
what they excluded at Meridian — and the point is not the coincidence but that the number is
produced rather than asserted. The advance rate sheet runs the Chapter 5 method: base case cumulative
net loss of 2.4 per cent, a downside multiple of 2.5, a margin of 1.5 per cent for
servicing and data risk, an 88 per cent advance rate, 12 per cent enhancement, a
break-even loss multiple of 5.0 times. It also prices what the 92 per cent Meridian asked
for would have meant, and shows that the enhancement clears its own floor even at the most conservative
multiple Appendix G allows.
Screening, diligence, structuring, the first eighteen months and the stressed case, each on its own
sheet, with every number the chapter states in prose put somewhere it can be tested. What
EUR 340,000 and nine weeks bought, quantified. The channel loss decomposition, which turns out to
say something slightly different from the sentence above it. The trigger headroom before month sixteen.
The residual distribution of EUR 800,000 a quarter whose suspension mattered more than it looked,
against a liquidity covenant with EUR 4 million of headroom. And then the run-off, modelled
properly. The chapter says the facility is repaid to roughly 60 per cent of peak within nine
months and substantially repaid within twenty, from a pool with a weighted average life of
31 months. Those two outcomes are reproduced exactly — by a pool whose weighted average life
is about 13 months. At 31 months the facility is still at 85 per cent of peak at
month nine. The outcomes agree with each other; it is the stated life that does not fit, and the
difference is a year of exposure to a servicer in distress.
The_Meridian_Transaction.xlsx · XLSX · 42 KB
Appendices E and G, Chapters 4 and 5
Trigger design and stress testing
Appendix E gives trigger rules with no numbers. Chapter 22 gives trigger levels with no
rules. Nobody runs one against the other, so this workbook does. The level one delinquency trigger of
3.2 per cent implies an expected 60+ delinquency of 2.46 per cent; the level two
trigger of 4.0 per cent implies 2.50. Four hundredths of a point apart — the two triggers
were set from one expectation using the Appendix E rules and then rounded for the document, and
nothing in the text says so. The same exercise recovers the excess spread floor of
3.5 per cent and the vintage base of 3.0 per cent, neither of which appears anywhere
in the book. Also here: the Appendix A headroom monitor with its leads-or-lags column, the
Appendix G three cases and the break-even solve, and the emergence chain that explains where
Chapter 5’s roughly a year late comes from — three months to default, six to
sale, three to recognition. At Meridian’s origination rate that year is EUR 372 million
of assets bought after the book had already turned.
The segment reference and the diligence checklists
The five-question structure review, the originator diligence checklist in six sections, the
eligibility drafting list, the servicing review with the cash control and backup questions
Chapter 16 adds, the seventeen-segment reference table, and the allocator questions with the weak
and strong answers the book gives for each. Every line carries a status, a date, an owner and a note,
and a progress sheet puts all of them on one page. The segment table gains one column that is not in the
book: the amortisation speed after a trigger, scored one to five so the table can be sorted on it. That
is the column that decides how a position behaves when it goes wrong, and a portfolio built entirely
from scores of one and two will be in every one of its problems for years rather than months.
78 figures are checked against the book across the first three workbooks, and all 78 reproduce. Each line
carries its own tolerance, set to the precision the book actually prints.
Two places are flagged on the sheet rather than quietly adjusted. Chapter 22 says Meridian’s
deterioration is almost entirely channel mix; on the chapter’s own loss rates the mix shift explains
about a third of it, and product mix looks like the rest. And the Stage five run-off, described above, is
faster than the stated weighted average life produces. Neither is a criticism of the book. Reproducing a
book’s numbers is the easy half of a companion workbook; the useful half is finding the places where
the numbers say slightly more than the sentence does.
Opening the files
The workbooks open in Microsoft Excel, LibreOffice Calc, Google Sheets and Numbers. They use no macros
and no add-ins, so nothing needs to be enabled or trusted. If your spreadsheet asks to update links on
opening, decline — there are none.
The book these files come from
The Asset-Based Finance Handbook by Julian R. Sterling. The workbooks reproduce the worked examples in the
chapters; the book is where the reasoning behind them is set out. It is not yet on sale —
these files are published ahead of it.
Closing the DealTwo defensible bridges 20.70 million apart, a peg worth 7.00 million, and the six choices that remove 6.60 of a 12.00 earn-out.
CMBS and CRE CLOsWhere the loss actually lands, from appraisal reduction to realised severity, and what the B-piece is really being paid for.
How to Read a Commercial LeaseThe three refinements chapter 19 names and never performs, and the renewal rate below which the mark-to-market is worth nothing.
How to Read a Credit AgreementWhere the default actually comes from, the cure that costs 5.5 times the other, and the capacity nobody adds up.
How to Read a Real Estate Loan AgreementThe cure ratio in closed form, the four-point window in which the cheap cure works, and the cure sized to the wrong threshold.
Office Real EstateA six per cent yield that returns 3.2 per cent once the re-letting cycle is paid for, and the headline-to-net-effective rent arithmetic.
Private Equity Real EstateBoth worked waterfalls to the dollar, the two capital stacks, and the arithmetic of the promote made changeable.
Private Markets PerformanceThirty-one of the thirty-three figures chapter 19 publishes reproduce exactly — and the two that do not are named rather than quietly adopted.
Raising a Real Estate FundThe chapter 17 funnel run on a calendar — when the first close actually lands, and why more travel does not help.
Real Estate FinanceFour people look at one building and reach four numbers; the lender is whole only above 105,109,489, twelve per cent below today’s value rather than forty.
Real Estate Financial ModelingProperty, development and fund models built line by line, and the modelling test worked end to end.
Real Estate Fund ManagementThe waterfall of 6.11, the build-to-core of 8.7 and the proceeds gap, reproduced as live formulas rather than asserted.
REIT Analysis and ValuationFFO of 532.0, AFFO of 381.0, net asset value and dividend safety — every figure a formula you can change.
Retail Real EstateThe occupancy cost of every unit in a centre, the sixteen per cent of the rent roll no tenant can sustain, and the right-size-convert-or-hold decision priced.
Sale and LeasebackA €179.5 million transaction end to end, with rent cover measured on the entity that actually signs the lease.
Self-Storage Real EstateThe cohort engine behind a 590-unit store, and the rate increase on existing customers priced against the move-outs it causes.
The Fund Finance ProfessionalChapter 8 builds the reported-to-eligible NAV bridge; chapter 9 computes every ratio without it. Two points at every state — and what a subscription line does to the IRR.
The Growth Equity InvestorWhat a pro rata cheque really costs, and the band where defending your ownership loses money.
The Private Credit InvestorThe two coverage ratios are not measured on the same thing: the erosion is 47.7 per cent, not the 28.7 the headline implies.
The Private Equity Fund Controller PlaybookThe book defines IRR, DPI, RVPI and TVPI, tells you to update them at the exit, and prints not one value. Computed: a 1.833× deal inside a fund at 0.892 TVPI.
The Venture Capital AssociateWhat defending a position costs, and how many companies a reserve pool actually defends.
Financial Risk ManagementA fund inside every limit that cannot meet a redemption — and the number that decides it is the one with no currency attached.
Business ValuationThree advisers land 26.8 per cent apart on one company, and the whole gap turns out to be 1.96 points of perpetual growth.
Quantitative FinanceThree models agree to a quarter of one per cent about a number that one unobservable input moves a hundred and three times as much.
Asset ManagementFour people quote four returns for one mandate, all correct and 2.7017 points apart — forty-eight times the manager’s net skill.
Alternative InvestmentsA manager reports 13.29 per cent and the endowment earns 6.26 — both correct, and only a third of the advertised advantage arrives.
Credit AnalysisFour defensible EBITDAs on one borrower give leverage from 3.19x to 6.47x — and the add-back argument is fifty times the covenant headroom.
Venture CapitalOne company out of twenty-eight returns 56.7 per cent of the fund, and half the capital goes in after the decision — at half the return.
Machine Learning for FinanceFive people quote the accuracy of one credit model, all five are right, and the number that decides how much money it makes is none of them.
Commercial Real Estate InvestingThe equity earned 8.6647 per cent and the investor received exactly 8.0000 — the preferred return, and nothing above it.
Mergers and AcquisitionsThe board paper says the deal creates 13,436,667 of value. The arithmetic says it destroys 17,530,855. Nobody is lying.
DerivativesThe treasury report says the hedge cost 1,233,698. That is the interest differential, not a cost.
Treasury ManagementFive cash balances for one company, all correct and 145,600,000 apart — and the revolver that is two-thirds of the liquidity leaves at a revenue fall of 8.4127 per cent.
Financial Planning and AnalysisRevenue 3.0190 per cent above budget and operating profit 16.3209 per cent below it, in the same quarter, with every figure correctly stated.
Energy TradingA position report that is 91.7031 per cent hedged and correctly computed, on a book that is short 2,542,000 MWh — and a margin call of 198,400,000 the next morning.
Construction Cost ControlA contract sum of 26,301,102 became a final account of 29,153,363 on the building that was drawn — and 85.8 per cent of what was lost was knowable on the day it was signed.