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What is collateral special value?
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Shares in a private company must be valued when they are given as collateral for a loan and the borrower does not pay the interest and capital when due. Unlike for quoted companies, the subjectivity in valuing a private company results in a wide range of valuations. Even when standard methods are used, there are additional questions of whether the valuations should include, for example, synergy benefits which would accrue to a buyer of the shares – the so-called “special value”. The range of valuations and special value could be problematic, particularly for the borrower. In such transactions, disputes can be avoided if the valuation method and the parameters required by the model are agreed at inception.
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