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Mid-Market Values

  • Mid-market valuations are prices for which an existing interest rate hedge could possibly be terminated without any profit or margin gained by the hedge provider.
  • Most privately held companies use mid-market valuations for reporting their derivatives positions.
  • Mid-market valuations are available and required to be provided to borrowers on a regular basis by the hedge provider.
  • Borrowers should request mid-market valuations from their bank or other hedge provider for each reporting period.
  • GAAP regulations call for an independent valuation
  • Harbor Derivatives provides that service free of charge.

FAS 157/ASC 820 – Fair Value Measurements

  • FASB, Financial Accounting Standards Board requires publicly traded companies to report hedge valuations in their accounting reports following rules stated under the FAS157/ASC820 regulation.
  • Fair value for an existing hedge is adjusted from plain mid-market valuations based on current credit market conditions
  • Some privately held companies may elect to follow FAS 157 valuation reporting especially if their investors require it.
  • Harbor Derivatives provides this valuation service for a competitive fee.

FAS 133/ASC815 – Fair Value Measurements

  • HEDGE DESIGNATION MEMO identifies the purpose of a hedge and the types of risks to be hedged.
  • The designation must be made ahead of trading.
  • The borrower must confirm the effectiveness of the hedge on a periodic basis.
  • The purpose is to avoid having borrowers entering into derivatives for speculative purposes.
  • If the hedge is deemed to be ineffective the gain or loss must be recorded in the income statement.
  • Harbor Derivatives provides services to meet FAS133/ASC815 requirements.

FAS159 – Fair Values for Financial Assets and Liabilities

  • Borrowers electing to report fair values on their loans can benefit by choosing the loans they want to provide market valuations for potentially capturing improvements in the valuation due to favorable credit conditions.
  • Valuations may offset a corresponding gain or loss on a swap.
  • Borrowers can choose which loans they would like to have valuations on.
  • Once the valuation adoption is made the loan must continue to be valued. All unrealized gains and losses are recorded in retained earnings.
  • Harbor Derivatives provides FAS159 valuations for a fee.
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