The scenario method in the estimation of market value of debt claims

Abstract

The credit boom has led to an increase in overdue liabilities. One of the mechanisms to optimize the creditor's risks is related to assignment of claims. However, in such a situation it is necessary to objectively estimate the market value of the assigned claims. The increase in the size of the cession implies that a specific assessment methodology should be used. In this article the authors focus on this problem.Traditionally, the income approach is used to estimate the debt claims, according to which the market value of debt is related to discounted inflows. As a rule, assessment methodologies represent an idealized scheme for the debt recovery process. The proposed method considers different options to recover debt; it also assesses the likelihood of their implementation and the associated risks.In the course of the study, we underline that current Russian legislation suggests 4 scenarios for the recovery of debt: in the framework of contractual relations, by means of a complaint procedure, in court, and by means of a bankruptcy procedure. When conducting an assessment, it is necessary to take into account the specific features of a particular scenario, as well as the risks that arise. The article shows that the main problem arising in the process of estimating debt claims is connected with the maturity (related toeach of the scenarios), as well as an assessment of the discount rate as a measure of the risk of debt investing. The authors identify the main ways to solve the mentioned problems and give practical recommendations on the use of the methodology