Vol 21 (2024) - Issue 5

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Traded Debt Pricing: Considerations for Applying Secondary Debt Traded Prices in Valuation

Synopsis
Where a business is the issuer of debt which trades in the secondary markets, it is not uncommon to see the price of such debt referenced as a benchmark in valuations. These prices can be used to infer where the overall enterprise value of the business sits in the capital structure. Such benchmarks have been considered persuasive in certain court-sanctioned restructurings, such as Schemes of Arrangement.
Whilst such benchmarks, where available, should be considered, there are a number of limitations that valuers need to consider when deciding on how much emphasis to place on them in forming conclusions.
In this context, we set out a summary of how these benchmarks can be applied and certain limitations to be mindful of when doing so.