Article 17
Specific factors relating to the estimation and discounting of expected cash flows
1. When estimating cash flows, the valuer, or the resolution authority where conducting a provisional valuation pursuant to Article 26(1) of Regulation (EU) 2021/23, shall apply their expert judgement in determining key characteristics of the assets or liabilities being measured.
The valuer, or the resolution authority where conducting a provisional valuation pursuant to Article 26(1) of Regulation (EU) 2021/23, shall also apply their expert judgement in determining how the continuation, potential renewal or refinancing, run-off or disposal of those assets or liabilities, as envisaged in the resolution action referred to in Article 15(1) affect those cash flows.
2. Where the resolution action referred to in Article 15(1) envisages a CCP holding an asset, maintaining a liability, or continuing a business, the valuer, or the resolution authority where conducting a provisional valuation pursuant to Article 26(1) of Regulation (EU) 2021/23, may take into account the following factors potentially affecting future cash flows:
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(a) |
changes in assumptions or expectations, as compared to those prevailing as of the valuation date, consistent with long-term historical trends and considered over a reasonable time horizon, consistent with the holding period envisaged for the assets or with the period envisaged for the recovery of the CCP; |
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(b) |
additional or alternative valuation bases or methodologies that are considered appropriate by the valuer and consistent with this Regulation, including in the context of assessing the post-conversion equity value of shares. |
3. As regards groups of assets and liabilities or businesses envisaged to be run off, the valuer, or the resolution authority where conducting a provisional valuation pursuant to Article 26(1) of Regulation (EU) 2021/23, shall take into account workout costs and benefits.
4. Where the situation of a CCP prevents it from holding an asset or continuing a business, or where a sale is otherwise considered necessary by the resolution authority to achieve the resolution objectives, the expected cash flows shall be valued at the disposal values expected within a given disposal period.
5. The disposal value shall be determined by the valuer, or the resolution authority where conducting a provisional valuation pursuant to Article 26(1) of Regulation (EU) 2021/23, on the basis of the cash flows, net of disposal costs and net of the expected value of any guarantees given, that the CCP can reasonably expect in the prevailing market conditions through an orderly sale or transfer of assets or liabilities.
Where appropriate, having regard to the actions to be taken under the resolution scheme, the valuer, or the resolution authority where conducting a provisional valuation pursuant to Article 26(1) of Regulation (EU) 2021/23, may determine the disposal value by applying a discount for a potential accelerated sale to the observable market price of that sale or transfer.
When determining the disposal value of assets which do not have a liquid market, the valuer, or the resolution authority where conducting a provisional valuation pursuant to Article 26(1) of Regulation (EU) 2021/23, shall consider observable prices on markets where similar assets are traded or model calculations using observable market parameters, with discounts for illiquidity reflected, as appropriate.
6. The valuer, or the resolution authority where conducting a provisional valuation pursuant to Article 26(1) of Regulation (EU) 2021/23, shall consider the following factors that might affect disposal values and disposal periods:
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(a) |
the disposal values and disposal periods observed in similar transactions, appropriately adjusted to take into account differences in the business model and in the financial structure of the parties to those transactions; |
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(b) |
the advantages or disadvantages of a particular transaction that are specific to the parties involved or to a subset of market participants; |
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(c) |
the particular attributes of an asset or business that may only be relevant to a specific potential purchaser, or to a subset of market participants; |
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(d) |
the likely impact of expected sales on the CCP’s franchise value. |
7. When assessing the value of businesses for purposes of the use of the sale of business or of the bridge CCP tool, the valuer, or the resolution authority where conducting a provisional valuation pursuant to Article 26(1) of Regulation (EU) 2021/23, may take into account reasonable expectations of the franchise value. Such expectations of the franchise value shall include those resulting from a renewal of assets, from a refinancing of an open portfolio, or from a continuation or resumption of business in the context of the resolution actions.
8. A valuer, or a resolution authority where conducting a provisional valuation pursuant to Article 26(1) of Regulation (EU) 2021/23, that assesses that there is no realistic prospect for the disposal of an asset or business, shall not be required to determine the disposal value but shall estimate the related cash flows on the basis of the relevant prospects for continuation or run-off.
The first subparagraph shall not apply to the sale of business tool.
9. As regards parts of a group of assets or of a business that are likely to be liquidated under normal insolvency proceedings, the valuer, or the resolution authority where conducting a provisional valuation pursuant to Article 26(1) of Regulation (EU) 2021/23, may consider the disposal values and disposal periods observed in auctions involving assets of a similar nature and condition.
When determining the expected cash flows, the valuer, or the resolution authority where conducting a provisional valuation pursuant to Article 26(1) of Regulation (EU) 2021/23, shall take into account illiquidity, the absence of reliable inputs for the determination of disposal values, and the resulting need to rely on valuation methodologies based on unobservable inputs.