A new IVSC Perspectives Paper examines current market practices for selecting appropriate valuation methods for private debt, supporting greater consistency, transparency and confidence in fair value assessments.

Private credit has evolved rapidly from a niche area of financing into an increasingly important global asset class. However, the scarcity of observable market prices, the highly customised nature of private debt instruments and the limited liquidity of secondary markets continue to present significant challenges when determining fair value.

This IVSC Perspectives Paper, prepared by the IVSC Financial Instruments Board, explores current market practice in selecting suitable valuation methodologies for private debt instruments, with particular emphasis on direct lending. It considers the key factors valuers should assess in relation to the issuer, the financial instrument and the underlying transaction. These include the evaluation of financial and credit performance, as well as the assessment of enterprise value and debt servicing capacity.

The paper further examines the practical application of the principal valuation approaches recognised under IVS. It addresses the use of market-based evidence and calibration, discounted cash flow techniques and yield analysis for performing debt instruments. For situations involving financial distress, default or the loss of going-concern status, it also considers net recovery and liquidation-based approaches.

Against a backdrop of increasing attention from regulators and investors, the paper emphasises the need for a robust, transparent and consistently applied valuation framework. A disciplined approach can contribute to more reliable and comparable fair value assessments while enhancing confidence among investors and other stakeholders.

This publication represents the first in a planned series dedicated to the valuation of private debt. IVSC invites feedback from market participants, valuation professionals, investors, auditors, regulators and other interested stakeholders to support and inform future work in this area.

Link: Private Debt Valuation: Selecting an Appropriate Valuation Method