Valuation opinion determining a market interest rate for newly-issued debt

Valuation opinion determining a market interest rate for newly-issued debt

Determination of a Market Interest Rate – Corporate Tax Planning

Stout was engaged by CIVF IV Holdings, L.P. (the fund) in connection with a to-be-formed corporation (the company) that will be structured as a leveraged blocker. Stout agreed to render an opinion as to the appropriate interest rate (the rate) to sustain the fair market value as of a to-be-determined date equal to the contributed capital of the to-be-issued debt (the debt) of the company. It was our understanding that the company contemplated being capitalized with approximately 60% debt and 40% equity. The company would use its debt and equity capital to make an equity investment in a separate private equity fund that will be capitalized with 60% bank debt and 40% equity, which results in an effective loan-to-value ratio of the fund of 84%.