Tag: Lending Risk

The Interplay Between A Loan’s Collateral Value And Defaults

Managing Loan Risk

We have written a number of blogs on the relationship between commercial loan pricing, loan-to-value (“LTV”), amortization terms and riskiness of leverage.  Our major theme is that the common secondary source of repayment (liquidation of collateral) is much less consequential than the common first source of repayment (cash flow).  There are a few reasons why this is the case.  The primary three reasons are as follows: 1) cash flow, not collateral, is a causal relationship to payment defaults, 2) variability around loss-given-default as measured by LTV is very large, and 3) credit loss is ma

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