FINANCIAL PERFORMANCE OVERVIEW
The primary purpose of this analysis is to critically assess the operations of the 10.25% Senior Secured MTN fund of VSJ Ventures Ltd. and compute an assessed value of the fund based on its comprehensive investment thesis and strategy. The operations fund has been computed and projected using multiple methods. This analysis aims to identify the level of risk of default (if any) of the MTN while evaluating the fund value based on key metrics for each operational segment.
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The projected values that have been computed are as follows:
Fund Assessed Value: The fund's value is based on the investment thesis and strategic plan of the fund by looking at each operational metric and projection of all cash flows (inflows and outflows) of the fund during the issued period of the MTN. This method will consider the period closing fund value without accounting for policy variations.
Fund Probabilistic Value: The fund's value is based on its investment thesis and strategic plan that looks at all key metrics and their probabilistic variable occurrences. Based on the sensitivity of each set of variables, the period closing fund value accounts for all possible policy variations.
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This analysis is based on Probabilistic Options-based valuation and Cash flow-based assessment. The key analysis is to assess whether both stated methods provide a positive surplus for the USD $250 Million MTN and whether the fund operations can effectively and safely cover the MTN's coupon rate. Based on the issue size of USD $250 Million, the fund should justify a period-end value of USD $271 Million (including principal and coupon payment).
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Based on the analysis, we have computed the closing fund value to be as follows:
This ensures that VSJ Ventures Ltd. will be able to generate a surplus through the MTN’s redemption value. This report investigates the detailed analysis of the fund operations and reiterates the “AAA” rating, with a probabilistic default rate of 0.0000%—0.0003%.
The weighted fund value has been derived by the sum of all probabilistic scenarios:
This reiterates our rating of “AAA” as the probability of default in this case is 0.000%. The above analysis highlights the high degree of capital protection. It also ensures that the MTN's interest and principal value are 100% protected. It is important to note that as per our MTN Insurance, 100% capital is protected over and above the 100% protection provided by operational efficiency.
VSJ Ventures LTD outlines that this analysis aligns with the fund's projections, as the variance between the Probabilistic fund value and the Assessed fund value as per proforma financials is only 0.093%, highlighting our rationale for the credit rating. In both cases, the redemption value of USD 271 Million resulted in a cash surplus.
Redemption Reserve Creation
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To successfully redeem the fund at the end of the period, the company will allocate a proportion of the annual profits towards creating an MTN redemption reserve. This reserve will ensure that there is some margin of safety for coupon payments. Although the reserve amount will not be substantial initially, it will accrue later as a margin of safety mechanism for principal payment at fund maturity. The current allocation has been made at 35% of the profits earned annually by the fund. This would also ensure cover for any anomalies that might occur regarding the fund valuation.
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This transfer of value will also enable the company to allocate and demarcate funds within its assets as long-term parked funds to be used to redeem the MTN at the end of the issue period.
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The table showing the allocation of profits earned and allocated towards the MTN redemption reserve is as follows:
Due to the annual planned allocation, the MTN redemption reserve and reserve of $250 million will be worth $28.97 million at the end of the period.
Redemption Procedure
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At the end of the term, the company will utilize its Fund Investment A/C (through liquidated investments) to repay the MTN holders their principal and coupon payments due. Any value of assets left in the Fund Investment A/c will be carried into the balance sheet as assets of VSJ Ventures LTD post closure of the fund.
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In terms of Liabilities, at redemption, the fund will close the MTN account for principal and utilize the MTN redemption reserve for the coupon payment. It will also act as a contingent fund for any anomalous situation. Any balance left in the MTN redemption reserve will be transferred into the Reserves and Surplus and become part of the Owners' funds after the reserve fund is redeemed.
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All exits will be managed before the end of the closure period based on the exit plan set out in each business venture.