Calculating Unit Values for LendingRobot Series
As with any investment, the key to determining returns is knowing the value of the underlying assets. For LendingRobot Series, this is entirely dependent on the Series unit values and the number of units an investor owns. In this article, we explain how unit values are calculated and conclude with several details that arise due to our chosen methodology.
The unit value for a Series is calculated by summing the total value of the Series and dividing it by the total number of units in the Series:
\[\frac{Total\ Value}{Total\ Units}\]
Total units only change if investors are entering or exiting the Series. Investors enter a Series by buying into the series at the current unit value price. Investors cashing out of a Series are redeeming their units at the current unit value price. Once redeemed, the units are removed from the total number of units for that Series. In this manner, the entering and exiting of investors does not affect the unit value price in any way.
Now for the numerator in the equation. Total value comes from only two sources; cash and notes. Cash can come from new investors buying into the Series, payments received from cashflows, and recoveries. The value of cash is known and needs no adjustments. The value of notes, however, is less certain. If notes are of good standing (e.g. current), then they are valued at their remaining outstanding principal on the note plus any accrued interest to date. If notes are late to any degree, then there should be some expectation that they will be charged-off. To account for this, we use the standard industry practice of discounting the value of late notes by 1/60th for every day late. This means that a note that is 60 days late or more, for calculating unit value purposes, will have 0 value. Thus in any given time period, unit value for the series is calculated as:
\[\frac{\sum\limits_{k=1}^n ((OP + AI)*max(0,(1-\frac{DL}{60})) + P + R)_{k}}{UB}=\frac{\sum\limits_{k=1}^n ((OP + AI)*max(0,(1-\frac{DL}{60})) + P + R)_{k}+ NNIC}{UB + NUC}\]
Abbreviations
OP = Outstanding Principal
AI = Accrued Interest
DL = Days Late
P = Payments
R = Recoveries
UB = Units Beginning
NNIC = Net New Investor Cash
NUC = Net Units Created
where a series has \(n\) notes. New Investor Cash and Units Created are net which accounts for investors cashing out. And finally, let us give examples with a simple Series containing only three notes, one new investor joining in the second month, and a starting unit value of $100:
| Note | Date | Outstanding Principal Beginning\(($)\) | Accrued Interest \(($)\) | Days Late | Payments Made \(($)\) | Recoveries \((\$)\) | Note Value End \(($)\) | Discount \((\$)\) | Adjusted Note Value End \((\$)\) |
|---|---|---|---|---|---|---|---|---|---|
| A | March 2017 | 100.00 | 0.83 | 0 | 2.83 | 0.00 | 98.00 | 0.00 | 98.00 |
| April 2017 | 98.00 | 0.82 | 0 | 2.83 | 0.00 | 95.99 | 0.00 | 95.99 | |
| May 2017 | 95.99 | 0.80 | 0 | 2.83 | 0.00 | 93.96 | 0.00 | 93.96 | |
| B | March 2017 | 50.00 | 0.42 | 0 | 1.42 | 0.00 | 49.00 | 0.00 | 49.00 |
| April 2017 | 49.00 | 0.41 | 31 | 0.00 | 0.00 | 49.41 | 25.53 | 23.88 | |
| May 2017 | 49.00 | 0.41 | 61 | 0.00 | 0.00 | 49.41 | 49.41 | 0.00 | |
| C | April 2017 | 100.00 | 0.83 | 0 | 2.83 | 0.00 | 98.00 | 0.00 | 98.00 |
| May 2017 | 98.00 | 0.82 | 0 | 2.83 | 0.00 | 95.99 | 0.00 | 95.99 | |
| June 2017 | 95.99 | 0.80 | 0 | 2.83 | 0.00 | 93.96 | 0.00 | 93.96 |
| Date | Adjusted Note Value End\(($)\) | Payments Made \(($)\) | Recoveries \((\$)\) | Units Beginning | Amount Funding New Note(s) \($\) | Net New Investor Cash \($\) | Cash \((\$)\) | Net Units Created | Units End | Unit Value Period End\((\$)\) |
|---|---|---|---|---|---|---|---|---|---|---|
| March 2017 | 147.00 | 4.25 | 0.00 | 1.5 | 100.00 | 95.75 | 0.00 | .949587 | 2.449587 | 100.83 |
| April 2017 | 217.87 | 5.66 | 0.00 | 2.449587 | 0.00 | 0.00 | 5.66 | 0 | 2.449587 | 91.25 |
| May 2017 | 189.95 | 5.66 | 0.00 | 2.449587 | 0.00 | 0.00 | 11.32 | 0 | 2.449587 | 82.16 |
Note how the discount applied to Loan B changes over time as the number of days late increases. This causes the steady unit value decrease for the Series. The discounting makes no assumption of any recoveries, but when they occur they are counted in full and combined with cash.
- Justin Hsi
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