6. What QFAS is notâŚâŚâŚâŚâŚâŚâŚ
ď§ It is not Accounting,
ď§ It is not Business Valuation,
ď§ It is not Investment Banking,
ď§ It is not theoretical, it is scientific, and
ď§ Above all, it is NOT a cure for poor management, fraud, and/or weak leadership.
Quantitaive Finance must be coupled with qualitative, right-brain
thinking to be most effective.
8. Typical Advisory Services
⢠Earnings and cash flow sensitivity and volatility analysis,
⢠Cash flow forecasting and optimization,
⢠Market risk assessments,
⢠Pricing reviews and optimization studies,
⢠Client profitability optimization and segmentation,
⢠Quantitatively-driven operational transformation projects,
⢠Hedging strategies,
⢠Model validation,
⢠Curve construction,
⢠Limits setting, testing, & consulting,
⢠Model risk assessment, and
⢠Structuring & valuation of exotic derivative instruments.
9. Sample Applications
Fourier Analysis
Navigant can assist Clients to develop mathematical methods to decompose
data into specific frequency elements. This technique can be used to analyze
and price daily, weekly, and monthly variations in electric power demand, for
example.
Laplace Transform/Moment Analysis
Navigant can assist Clients to develop an appropriate mathematical method,
and model, to decompose data into its statistical moments, such as
distribution, kurtosis, and skewness. This capability allows for superior risk
models that go well beyond traditional VaR, CFaR, or mVaR; and advance the
ball towards a better grasp of âBlack Swanâ events, which are the most
devastating events of all.
10. Sample Applications contâd
Differential Equations & Multivariate Regression Analysis
Navigant can assist Clients with solutions for equations that have first, second,
and higher order derivative relationships across multiple variables. This can
be essential in determining how various drivers impact outputs. For example,
this is the best way to properly model wholesale refining margins.
Factor Analysis
This is a statistical method that can be used to determine key unobserved
and/or underlying correlations between several variables. For example, for a
retail electric provider, Factor Analysis can be used to do a more accurate job
of quantifying customer profitability analysis.
11. Sample Applications contâd
Error Propagation
Navigant can assist Clients with the development of uncertainty propagation
models, in order to determine the specific impact of variable variances,
correlations, and volatilities. This is useful in doing more sophisticated
EBTIDAX or cash flow volatility analysis based on the uncertainty of drivers
in the upstream oil & gas business.
Integer Optimization
This is an optimization technique that uses discrete constraints. It is easier to
optimize continuous parameters, but discrete constraints (like volume or
capacity) complicates optimization models and makes them slow to run. Plant
optimization and discrete market simulation (as in power markets) are two
examples of when this technique can be effective.
12. Sample Applications contâd
Stochastic Probability Matrices
In simple terms, this service means that we help Clients to list and then map
out every possible event that might occur. Then, we work to assign a
probability to each of them. This work is coupled with expected valuations
per event, and is very useful in the analysis of commodity markets, cross-
correlation analysis for bank liquidity, as well as working capital optimization.
Stochastic Processes & Monte Carlo Simulation
Using software, or coding in Excel, Navigant can build simulation models
using random variables to determine their impact on important financial and
operational metrics. Specifically, hedging and trading strategies are well
suited to this approach.
14. Stochastic Market Analysis
How It Works
⢠Using SQL Server, we build as detailed a market model as possible of all
market inputs, which impact the Clientâs operations (Midstream Crude Oil,
Polyethylene, ERCOT, etc.),
⢠Also using SQL Server, we prepare an output data file to store all market
data outputs,
⢠MCS is used to run simulations of various market strategies,
pulling/pushing on data in the SQL data bases, and then
⢠XLS is used to prepare summary output tables and metrics for leadership
discussions.
Applications
⢠Test M&A deals and their market impact,
⢠Test pricing strategies,
⢠Shock the market, and
⢠Quantify strategy and test its valuation impact.
17. Technical Competencies
Fixed-income products
⢠Fixed and floating rate instruments, bonds, swaps, caps and floors, FRAs and other delta
products.
⢠Yield, duration and convexity calculations.
⢠Bootstrapping to build up the yield curve from trading bonds and swaps.
⢠Curve stripping - Using reference rates & basis spreads, OIS discounting and dual-curve
stripping, cross-currency basis curves, and calculating the cost of funds.
⢠Interpolation methods, including piece wise constant forwards, piece wise linear, cubic
splines, smart quadratics, quartics, and monontone convex splines.
⢠Stochastic interest rate models, one and two factors.
⢠Model Calibration - Fitting the yield curve in simple models.
⢠Data analysis - Examining interest rate and yield curve data to find the best model.
18. Technical Competencies contâd
Probabilistic methods for interest rates
⢠Using the Heath, Jarrow and Morton model, & modeling the yield curve.
⢠Determining risk factors of yield curve evolution and optimal volatility structure.
⢠Pricing interest rate derivatives by Monte Carlo Simulation.
⢠The Libor Market Model, calibrating the reference volatility structure by fitting to caplet or
swaption data.
⢠The SABR Model - Managing volatility risks, smiles, local volatility models, using the
SABR model and hedging stability.
⢠The Arbitrage Free SABR model - Reduction to the effective forward equation, arbitrage
free boundary conditions, comparison with historical data and hedging with the SABR
model.
19. Technical Competencies contâd
Credit risk and credit derivatives
⢠Structural and Intensity models used for credit risk.
⢠CDS pricing, market approaches, and implied default probability, recovery rates, & default
time modeling.
⢠Synthetic CDO pricing, using the default probability distribution, default correlation,
tranche sensitivity, & pricing spreads.
⢠CDO/copula modeling using XLS spreadsheets.
⢠Correlation and state dependence analysis.
⢠Credit Valuation Adjustment (âCVAâ): CVA exposure, modeling exposure, collateral,
wrong way risk & right way risk.
⢠Risk of default - The hazard rate, the implied hazard rate, the stochastic hazard rate and
credit rating, & capital structure arbitrage.
⢠Copulas - Pricing basket credit instruments by simulation.
⢠Statistical methods in estimating default probability - Ratings migration, transition
matrices, and Markov processes.
20. Technical Competencies contâd
Stochastic volatility and jump diffusion
⢠Modeling and empirical evidence, pricing and hedging, mean-variance analysis, the
Merton model, jump distributions, expectations and worst case analysis.
⢠Non-probabilistic models - Uncertainty in parameter values versus randomness in
variables, & nonlinear equations.
⢠Static hedging - Hedging exotic target contracts with exchange-traded vanilla contracts,
optimal static hedging.
⢠Advanced Monte Carlo techniques - Low-discrepancy series for numerical quadrature.
Used for option pricing, speculation, and scenario analysis.
21. Technical Competencies contâd
Energy derivatives
⢠Speculation using energy derivatives and risk management in energy derivatives.
⢠Cointegration - Modeling long term relationships, and statistical arbitrage using mean
reversion.
⢠Dynamic Asset Allocation - Convexity management, stochastic control, multi-period
projections, utility maximization, and the impact of transaction costs.
⢠Forecasting by using option prices - Volatility forecasting using historical asset prices and
current option prices.
⢠Inserting option prices into ARCH models, & typical ARCH results.
⢠Density forecasting - Criteria for good forecasts, estimating risk-neutral densities from
option prices, & risk-neutral to real-world densities.
23. Navigant Consulting, Inc.
Business Description
Navigant Consulting, Inc. is a
specialized, independent
advisory firm that supports
companies, lenders,
institutional investors, legal
counsel, and government
agencies. The company focuses
on entities and industries
facing the challenges of
uncertainty, risk, distress and
significant change, and on the
issues driving these
transformations.
Ticker NCI (NYSE)
2014 Revenue $859.6 million
Professionals 4,000+
Headquarters Chicago, IL
Senior Management
â Julie Howard, CEO and
Chairman, Navigant
â Cindy Baier, CFO and EVP
â Richard D. Hitt, Managing
Director, Head of Navigantâs
Corporate Finance Practice
Navigant Consulting, Inc. (âNavigantâ)
NCIâs 2,500+ professionals maintain a presence in 45 cities internationally
throughout North America, Europe and Asia, including a significant concentration of
resources in Chicago, Houston, London, New York, and Washington DC.
24. Comprehensive Energy Complex Coverage
ď§ Commodity Hedge Funds
ď§ Energy Services
ď§ Energy Trading & Marketing
ď§ LNG
ď§ Oil and Gas - Upstream
ď§ Oil and Gas â Midstream
ď§ Power Generation, Transmission, & Distribution
ď§ Refined Products
ď§ Renewable Energy
25. Our Strengths
ď§ Broad and deep expertise across the Energy Complex
ď We have consulting, banking, and corporate experience in diverse financial and commodity
markets, in addition to valuation & financial reporting technical capabilities. Our experienced
team includes MBAs, CPAs, CFAs, CBAs, ASAs, CAIAs, and MAIâs.
ď We are a one-stop shop, as we do complex commodity derivatives valuations alongside our
business and corporate valuation work.
ď§ Collaborative process
ď While our opinions are independent, you are involved throughout our process, because you
know your investments better than anyone. We want to understand your thinking, and we want
you to understand ours.
ď§ Thoroughness and accuracy
ď We give you more than just the conclusions. We give you thoroughly supported, accurate
valuation reports.
ď§ Integrity
ď We are only interested in getting to the right answer, employing generally accepted valuation
principles.
ď§ âTrusted Advisorâ to our clients
ď Our clients view us as business partners, working together to establish best practices in valuation
and transaction work as competitive advantages for their firms.
What makes Navigant unique?
26. Accepted in the Marketplace
ď§ Our work has supported KPMG, PwC, Deloitte, E&Y, BDO, GT, and other
audit firmsâ technical & audit staffs, undergoing detailed review of our fair
value analyses for financial reporting and tax purposes.
ď§ Our work has been reviewed and accepted by the SEC in numerous filings.
ď§ We have extensive experience defending our valuations before the IRS
(including Tax Court) and other tax and regulatory bodies.
ď§ Our senior professionals have performed technical reviews during their
tenure at the major accounting firms. We maintain continuing professional
relationships with current reviewers at these firms.
ď§ Our methodologies and findings have been presented to, and accepted by
numerous rating agencies, qualified institutional buyers and certified
investors.
ď§ Our professionals have published and spoken extensively on valuation
topics as they pertain to the investment community.
27. Trusted Advisor
Service
A combination ofâŚ..
⌠resulting in a âTrusted Advisorâ relationship creating
valuation as a competitive advantage.
Flexibility
Collaboration
Accuracy
Thoroughness
Timeliness
Integrity
Expertise
28. âExcellent communicationâ
âVery responsive from a process and analysis standpointâ
âExceeds expectations in response time â
âInvestors have reached out to Navigant on methods and assumptions and have only
provided positive feedbackâ
âMeets all schedules and deadlinesâ
âProvides creative ideas and suggestionsâ
References available upon request
What our clients say about usâŚ.
29. Navigant vs. Big 4
⢠We have a diverse skill set; not just CPAs,
⢠We have corporate industry experience, they do not,
and
⢠We are not limited by rules-based thinking and
checklists.
30. Navigant vs. Wall Street
⢠We do not have trading and marketing desks, so we
can be more objective,
⢠We understand regulatory and statutory valuation,
bankers sometimes do not, and
⢠We understand all of the accounting and tax rules
that are unique to the Energy Complex.
31. Navigant vs. Boutique Firms
⢠Our balance sheet and brand stand behind our work,
⢠We can deploy a wide variety of resources globally,
⢠We do not have to outsource or sub-contract
anything, we are a one-stop shop,
⢠Small firms cannot be counted on to be there with
you through all of your regulatory challenges, and
⢠Energy boutiques do not possess the quantitative
finance horsepower needed to be effective.
33. Resumes
Richard D. Hitt, Jr.
Managing Director
National Practice Leader
Navigant Consulting
30 South Wacker Drive
Suite 3100
Chicago, IL 60606
Cell: 312.953.7197
Tel: 312.583.2621
rhitt@navigant.com
Professional History
ďˇ Navigant Consulting, Inc.
ďˇ BearingPoint, Inc.
ďˇ KPMG, LLP
Education
ďˇ M.S.A., Eastern Michigan University
ďˇ B.S., University of Michigan
Licenses & Certifications
ďˇ Certified Public Accountant
Richard Hitt is a Managing Director and the Practice Leader for the Valuation & Financial Risk Management
practice of Navigant Consulting, Inc., based out of the Chicago office. He has more than 25 years of valuation and
financial advisory experience working with financial institutions and energy companies of all sizes.
In his current role at Navigant Consulting, Mr. Hitt oversees engagements governing acquisitions and sales of
banks and thrifts and is a leader in the firmâs efforts to develop and employ effective valuation and due diligence
techniques. His clients include some of the largest and best known financial service and energy corporations in
America, including Deutsche Bank, Bank of America, Bank of Montreal, KeyCorp, Charles Schwab, First Republic
Bank, E*Trade Financial Corp., NRG, LS Power, Primary Energy and Aquila.
Formerly a Managing Director of BearingPoint Incâs Valuation and Financial Services Advisory practice, Rick led
the development of a multi-faceted practice that focused on banks, thrifts, specialty finance and energy companies.
His experience includes financial advisory to community and regional banks, including due diligence, fairness
opinions, shareholder value analyses, merger and acquisition transactions as well as capital raising and investment
strategies. Prior to BearingPoint, Mr. Hitt was a partner in KPMGâs Valuation Services Practice.
Recent assignments Mr. Hitt has directed include:
⢠Valued individually all the domestic and international electric generating facilities of a $5 billion utility for
asset-backed funding purposes. The project included separate valuations of the power contracts and
merchant plants.
⢠Valued the domestic and international electric generating, electric and gas transmission and distribution
assets of a $4 billion utility for asset-backed funding purposes. The project also included valuing complex
electricity and natural gas derivatives.
⢠Performed financial analyses for the domestic operations of a $10 billion utility for debt restructuring
purposes.
⢠Rendered a fairness opinion to a Midwest life company as part of establishing a mutual holding company.
⢠Rendered a fairness opinion to a retail self insurance fund related to an investment in a workers
compensation insurance company.
⢠Provided SFAS 141 and 142 valuation assistance in the merger of two $150 billion US banks.
34. Thomas J. McNulty
Director
Navigant Consulting
909 Fannin St. Suite 1900
Houston, TX 7010
Tel: 713.646.5078
Cell: 832.472.3717
thomas.mcnulty@navigant.com
Professional History
ďˇ Navigant Consulting, Inc.
ďˇ Sirius Solutions LLP
ďˇ Plains All American
ďˇ Duke Energy
ďˇ Enron International
ďˇ US Foreign Service
ďˇ Brown Brothers Harriman
Education
ďˇ M.B.A. (Accounting & Finance),
Kellogg, Northwestern University
ďˇ B.A. (History), Yale University
Tom McNulty is a Director in the Valuation & Financial Risk Management practice of Navigant Consulting,
Inc. His specialties are transaction and commercial analytics, valuation, and risk management. Specifically, his
practice offers clients a unique combination of strategic, financial, and transactional advisory services. Mr.
McNulty is based out of the Houston office, and he has more than 20 years of financial advisory and related
experience work.
As a consultant, Mr. McNulty has advised clients drawing on his valuation, transactions, risk management,
treasury and international credentials. Specifically, he has assisted with the valuation of securities, business
units, acquisition targets, derivatives, and equity incentive plans. In industry, and as an advisor, he has
worked on more than $38 billion in MD&A deals and has valued more than $8.5 billion notional in futures,
options, and other derivatives.
In his current role at Navigant Consulting, Mr. McNulty directs engagements governing acquisitions and
divestitures throughout the energy complex, including upstream oil & gas, midstream, merchant power,
renewable energy, energy services, trading and marketing, as well as LNG. He also performs valuation work
for clients with complex equity, fixed income, and commodity derivative instruments.
Recent assignments Mr. McNulty has led include:
⢠Provided ASC 815 assistance to several energy companies related to their derivatives portfolios.
⢠Rendered a comfort opinion to a energy hedge offering a new midstream oil & gas fund.
⢠Rendered an opinion to an oilfield services company for a related party transaction.
⢠Directed ASC 805 project for the reverse merger of two private drilling companies.
⢠Provided ASC 718 valuation assistance to a publicly traded oilfield services company for its restricted stock
units and stock options.
⢠Delivered ASC 718 valuation assistance to a privately held upstream oil & gas company for its equity
incentive plan.
⢠Led the valuation work on the GP interest in a privately-held midstream company for a large litigation
engagement.
Resumes
35. Tom Houlihan
Director
Navigant Consulting
1180 Peachtree Street N.E.
Suite 1900
Atlanta, GA 30309
Tel: 404.602.5038
Cell: 404.849.1243
thomas.houlihan@navigant.com
Professional History
ďˇ Navigant Consulting, Inc.
ďˇ Intercontinental Exchange
ďˇ Mirant Corporation
ďˇ JC Bradford & Co
Associations and Licenses
ďˇ FINRA Series 7 & 63
ďˇ Candidate Member, American
Society of Appraisers
Education
ďˇ MBA, Finance, Vanderbilt
ďˇ BSBA Finance, Creighton
Thomas Houlihan is a Director in the Valuation & Financial Risk Management practice of Navigant
Consulting, Inc.
Mr. Houlihanâs principal focus is on valuation and advisory engagements related to the energy sector. In this
role, has provided clients with valuation consulting services for purposes including transaction due diligence,
fairness opinions, capital raising & investment strategy as well as litigation, tax and regulatory purposes. With
more than 16 years of valuation and financial advisory experience, Tom has provided valuation and
transaction assistance for client engagements involving some of the worldâs largest energy companies and
utilities, as well as midâsized companies, energy startâups and private investment funds.
Prior to joining Navigant Consulting, Tom held various roles in investment banking and corporate finance,
including senior positions in the debt capital markets division of JC Bradford & Co (now UBS Capital Markets)
and more recently in corporate development and asset management positions with Mirant Corp (Southern
Energy) and as Director of Finance and Strategy for Intercontinental Exchange (ICE).
Recent assignments Mr. Houlihan has directed include:
⢠Fair Market Value of multiple nuclear power plants - Retained by a large investor owned utility to assist
with evaluating options with respect to the early buyout or termination of lease financings secured by
the companyâs interest in several nuclear power plants.
⢠Valuation of a municipal waste-to-energy generation facilities to assist a client with evaluating lease
repurchase and financing options;
⢠Acted as primary valuation advisor to support a clientâs effort to finance the $210 million purchase of 680
MW North American peaking facility. NCI provided the client with additional valuation services to
support the company with allocation of purchase price for financial reporting.
⢠Performed the valuation of North American gas distribution system serving approximately 426 active
meters through approximately 11 miles of gas distribution mains. NCI provided an estimate of the fair
market value of the business to assist the clientâs effort to secure just compensation for the assets, which
were taken through condemnation proceedings.
⢠Retained by a major investment bank to provide an estimate of the prospective fair market value of a of
1,161MW CCGT. The estimate of value was necessary for financial reporting purposes, including
disclosures related to residual value guarantees stipulated in lease finance transactions for the plant.
Resumes
36. Neeli Souli Kohan
Associate Director
Navigant Consulting
90 Park Avenue, 10th Floor
New York, NY 10016
Tel: 646-227-4654
Cell: 646-232-8855
Neeli.kohan@navigant.com
Professional History
ďˇ Navigant Consulting, Inc.
ďˇ Deloitte Financial Advisory Services
LLP
ďˇ Overseas Shipholding Group
Education
ďˇ M.B.A., Finance, Pace University
ďˇ B.S., Accounting, Yeshiva University
Accreditation
ďˇ Chartered Financial Analyst (CFA),
CFA Institute
ďˇ Certified Public Accountant (CPA),
NY and NJ
ďˇ Candidate, ASA
Neeli Kohan is an Associate Director in the Valuation & Financial Risk Management practice of Navigant
Consulting, Inc. Ms. Kohan is based out of the New York office.
Ms. Kohan has more than 16 years of experience in the valuation of public and private businesses, securities,
and intangible/tangible assets. She has performed valuations for purposes of financial reporting (including
Business Combinations, Goodwill and Long Lived Asset Impairment Testing for US GAAP and IFRS), Federal
tax, project financing, sale/leaseback transactions, M&A due diligence, and management information purposes.
Industries served include power generation, gas, electric, water and wastewater utilities, alternative energy
providers, private equity, media and entertainment, shipping and transportation.
Ms. Kohan is a Certified Public Accountant, a Chartered Financial Analyst and a candidate of the American
Society of Appraisers. She has a B.S. from Yeshiva University in Accounting and an M.B.A. from Pace
University in Finance. Prior to joining Navigant Consulting, Ms. Kohan was with the Valuation practice of
Deloitte Financial Advisory Services, LLP.
Resumes