Imagine a bank is approached by an Australian developer for financing backed by 200 residual stocks (e.g. 200 remaining unsold units in a completed residential property).
- The financing size is 4 years A$ 100mm financing with 1% upfront fee and 5% p.a. interest payable monthly. This a payment in kind loan, which means the borrower can accrue the unpaid interest/fees (if any) to the outstanding balance;
- Total asset value is A$ 200mm (e.g. the LTV is 50%);
- Tenor is 2 years;
- Waterfall of the sales proceeds would be for interest servicing then loan amortization;
- Due to COVID-19 and the lock-down, no sales are projected in the first 6 months. Assume that the subsequent average monthly sales on the residual stocks is 5 units/month. Use a model to forecast the bank's cash flow. Include scenario testing (base case/ 2 different stress case) and sensitivity testing.