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– About Us –


                        Pluris Valuation Advisors LLC
                          is a valuation firm headqua...
– Our Clients Include –



Global Financial
  Institutions that require                 Public companies that need
  valua...
– The Pluris Advantage –


               •   Rules of thumb, or theory alone, are not
                   appropriate for ...
– Repurchase Procedure –


After the full redemption of preferred shares, each Bank may
repurchase warrants using these pr...
– How to Get There –


It is critical that each valuation for this purpose is backed by
research that:


    •   Is based ...
– Warrant Basics –


Warrants are long-term call options on the issuer’s own stock. The
valuation of a warrant is impacted...
– TARP Warrants –


Approximately 579 banks received TARP money. This includes 290
publicly traded banks with still-outsta...
– Warrant Illiquidity Discounts –


• Illiquidity discounts apply to all restricted
  and otherwise illiquid securities.
 ...
– Meet the Team –


Espen Robak, CFA, President                                             Elpida Tzilianos, PhD, Senior ...
– Contact Information –




26 Broadway, Suite 1202, New York, NY 10004
   Tel: (212) 248-4500 | Fax: (212) 248-4599

    ...
TARP Warrant Valuations
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TARP Warrant Valuations

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This presentation provides an overview of the valuation (fair market value) of the warrants issued to the Treasury by banks participating in the "TARP" Capital Adequacy Program.

Published in: Economy & Finance, Business
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Transcript of "TARP Warrant Valuations"

  1. 1. – About Us – Pluris Valuation Advisors LLC is a valuation firm headquartered in New York. We believe Pluris values more warrant positions than any other valuation firm in the United States. Pluris combines valuation and technical accounting expertise in its development and application of valuation methodology in compliance with tax valuation LEADING standards, as well as U.S. GAAP and IFRS. WARRANT Specific assets valued include warrants and other restricted securities of VALUATION FIRM IN THE public companies, auction rate securities, collateralized debt obligations, asset backed securities, distressed debt, bankruptcy UNITED STATES claims, limited partnerships, and other assets that lack liquidity. Pluris’ valuations are also used for tax purposes and litigation support. Our proprietary LiquiStat™ database enables Pluris to value even the most illiquid securities based on market data from the secondary market. Pluris’ access to professionals operating the largest secondary marketplace for illiquid warrants provides us with market “color” that cannot be captured in academic research or databases. 1
  2. 2. – Our Clients Include – Global Financial Institutions that require Public companies that need valuations of hard-to-value illiquid or illiquid securities valued in order to distressed securities comply with the fair value rules of U.S. GAAP or IFRS Hedge Funds and other investment advisors that need their Large estates and high net worth portfolios valued for their monthly families who need assets valued for and quarterly investor statements estate-planning purposes Litigants who need expert testimony for lawsuits involving securities and enterprise values. 2
  3. 3. – The Pluris Advantage – • Rules of thumb, or theory alone, are not appropriate for valuations of illiquid warrants. Individual discount determinations are needed. This requires market data. LiquiStat contains more data on trades in illiquid warrants than any other study. • Very little empirical transaction data exists on LiquiStat the market for illiquid securities. Pluris’ exclusive access to the LiquiStat database of restricted securities transactions on SecondMarket is unique. database ™ • Our proprietary LiquiStat database provides the comprehensive data from real-world transactions that is needed to generate, document and support valuations of illiquid assets. • Unlike data on private placements by the issuer, where discounts may result from many factors, LiquiStat data comes from arm’s-length investor trades in restricted securities, that are a pure reflection of fair value. • LiquiStat, along with our capital markets expertise and in-depth knowledge of the legal and regulatory environment for restricted securities, ensures our clients get the most accurate valuations possible. 3
  4. 4. – Repurchase Procedure – After the full redemption of preferred shares, each Bank may repurchase warrants using these procedures: • Bank provides the Treasury with its own determination of the Fair Market Value, relying on the opinion of an appraiser • If the Treasury objects, the Bank and Treasury meet to resolve differences • If differences are not resolved, the Appraisal Procedure is invoked, as follows: • Both Treasury and Bank each select an appraiser, each of whom do their own valuation of the Warrants and attempt to agree • If the two appraisers do not agree on the value, the two appraisers agree on a third appraiser • The three valuations are averaged, rejecting wide outliers, and this average is binding on both parties 4
  5. 5. – How to Get There – It is critical that each valuation for this purpose is backed by research that: • Is based on arm’s-length transactions in illiquid warrants, as empirical data has great potential for resolving conflicts, while theoretical model prices are more likely to prolong disagreements (in a world of “made-to-order” opinions) • Is specifically tailored to provide valuation discounts suitable for this purpose (valuation discounts for entities with similar financial characteristics) • Provides ranges and tolerances around central estimates, to further enhance decision making during the negotiation process • Is based on well-recognized models and statistical methods 5
  6. 6. – Warrant Basics – Warrants are long-term call options on the issuer’s own stock. The valuation of a warrant is impacted by: • The terms of the warrants (exercise • Trading characteristics of the underlying price, expiration date, anti-dilution security protection, transferability, etc) (exchange, volume, price, volatility, etc.) • Other rights, preferences, privileges, and • Ability to borrow the shares for purposes restrictions of the underlying security of shorting/hedging (registration rights, registration • Precedent sale transactions completed in status, etc.) the secondary market. • Time until the restriction(s) are released • Fundamental financial and other characteristics of the company 6
  7. 7. – TARP Warrants – Approximately 579 banks received TARP money. This includes 290 publicly traded banks with still-outstanding warrants. Typical terms include: • Ten years to expiration • Warrants for 15% of preferred shares • Exercise prices based on the 20-day • Customary anti-dilution provisions trailing average stock price before CPP • No voting rights application date • Shelf registration and piggyback rights • American options Banks* Number of Warrants Aggregate Intrinsic Aggregate Market Cap (millions) Value ($m) ($m) All TARP Banks with Warrants (290) 1,440 523 650,862 All With In-the-Money Warrants (40) 206 523 131,475 All With Out-of-the- Money Warrants (250) 1,235 NA 519,387 * All publicly traded CPP recipient banks with still-outstanding warrants. Data as of May 15, 2009. 7
  8. 8. – Warrant Illiquidity Discounts – • Illiquidity discounts apply to all restricted and otherwise illiquid securities. Discounts apply to theoretical “model” prices. • Transaction data from private placement studies supplement our research. Pluris • Transaction data from arm’s-length uses all industry-standard databases. investor trades in restricted securities from the LiquiStat database serve as the • An analysis of borrowing rates, if the empirical foundation for determining the security is borrowable, or hedging discount. costs, if it is hedgable, can provide additional support. • Academic research indicates options without trading are worth significantly less • Other value indications can be than options that are traded. This should determined based on theoretical apply to illiquid warrants too. models, such as the Longstaff and Finnerty models, for restricted stock. The discount for lack of liquidity is based on a combination of all relevant factors, methods, and empirical data; and appraiser judgment. 8
  9. 9. – Meet the Team – Espen Robak, CFA, President Elpida Tzilianos, PhD, Senior Associate President of Pluris Valuation Advisors LLC, is a nationally Head of New Product Development, also leads our illiquid recognized expert on private warrants, illiquid debt instruments equities valuation practice while providing support for Pluris’ (including auction‐rate securities), FAS 157, valuations for bankruptcy practice. Ms. Tzilianos’ valuation experience alternative investment managers, and discounts for lack of includes restricted stock, warrants, debentures (convertible and liquidity; and a prolific author on valuation, accounting, and non-convertible) and other hard-to-value, illiquid and/or taxation topics. Recent article topics include fair value of illiquid distressed securities. Prior to joining Pluris, Ms. Tzilianos was a securities, auction‐rate securities valuation, PIPE (private Research Associate at Finnerty Economic Consulting LLC, a investment in public equity) valuations, amendments to Rule litigation support, valuation, and financial consulting firm where 144, illiquidity discounts, valuation of stock options, M&A she conducted extensive private placement research and arbitrage data, and restricted stock marketability discounts. Mr. complex modeling on restricted securities. Ms. Tzilianos also Robak’s expert commentary has been featured in the Wall taught as an adjunct professor at both Manhattan College and Street Journal, Financial Times, Forbes, CFO Fordham University’s Deming Scholars MBA Program. Ms. Magazine, Bloomberg, Absolute Return, American Banker, The Tzilianos received her PhD in Economics from Fordham Deal, Compliance Week, Inside Market University in 2006. Data, Opalesque, Accredited Investor, and Hedge Fund Manager Week. He is a columnist for Wealth Strategies Eric Liu, Head of Research Journal. Head of Research, is responsible for research on illiquid Rick Martin, CPA, Vice President securities and for developing valuation models for illiquid equity securities, auction-rate securities, limited partnership Vice President of Technical Accounting, is in charge of interests, bankruptcy claims, and other illiquid assets. He is resolution of technical accounting issues as they pertain to our primarily in charge of the maintenance and transactions analysis valuation clients, and manages our relationships with audit required for the LiquiStat database. Furthermore, as a member professionals. Mr. Martin’s valuation experience encompasses of the Product Development team, he assists in developing and warrants, convertible preferred shares, and other restricted expanding the firm’s business lines. Prior to joining Pluris, Mr. securities. Prior to joining Pluris, Mr. Martin served as Head of Liu worked for Merrill Lynch and Haver Analytics where he Technical Accounting at Cowen and Company in New York gained asset management, and economic and financial research and Senior Technical Accounting Advisor at Credit Suisse in experience. He also has four years of engineering and project Zurich. Prior to Credit Suisse, Mr. Martin also held advisory management experience in the IT/Telecom industry in China. roles in financial services at each of the Big Four accounting Mr. Liu earned his Master’s of Business Administration from firms since 1997. Pace University and his Bachelor of Engineering degree from Xidian University. 9
  10. 10. – Contact Information – 26 Broadway, Suite 1202, New York, NY 10004 Tel: (212) 248-4500 | Fax: (212) 248-4599 www.PlurisValuation.com 10
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