Mark-to-market activities in the loan marketplace, whereby a bank loan fund's book value is adjusted to reflect its current market value, are in a state of transition. Regulatory non-compliance as dictated by the Sarbanes-Oxley Act and risk of investor litigation when funds are discovered to be improperly valued, no longer allows funds to carry all of their loans at par, or original issue value, unless they are in default.
These risks demonstrate the critical need for fair market value loan pricing in the mark-to-market arena. Investors can now offset pricing risks in an illiquid marketplace by using a pricing provider that implements a market approach, along with utilizing financial and credit analysis. Applying this methodology to the valuation of loans facilitates fund pricing that is reflective of current market levels - for even the least liquid loans.