A private company's debt may often be closely held by principal owners. The IRS often will challenge such debt as having an insufficient interest rate.

Private loan valuation is a cornerstone, signature valuation of NAV. We have defended our analysis for multiple tax compliance appraisals and our expertise in the valuation of private loans spans not just leading funds but also leading law firms and tax departments.  

In order to effectively value and defend a debt instrument's arm's length interest rate range, we use a wide sample of publicly-traded corporate bonds within our databases to examine the financial metrics of your company's issue against benchmarks from a sample of public issuers. The goal is to independently assess the rating that an issue would derive based on credit spreads, financial statement analysis of the subject entities with tens of guideline issuers, and key fundamental ratio benchmarking.

There are four leading benefits of an interest rate valuation opinion. Collectively these four protect our clients and help substantiate NAV’s rigorous analysis as an effective independent opinion on the validity of the private loan and its arm-length interest rate.

The benefits are as follows:

• Covered tax valuation opinion supporting the arm’s-length interest rate acceptable per IRS regulations; results may then be used to establish defendable intercompany loan rate and corresponding interest tax deduction
• Help achieve defendable interest expense cost savings on planned intercompany debt financing through our proprietary analytics and capital markets research covering both public and private data
• Improve after-tax cash flow from increased interest deductibility
• Utilize after-tax cash flows for working capital injections or other intercompany capital needs

Client Example # 1: Domestic Real Estate Loan

ABC Real Estate Company restructured its domestic real estate portfolio. As part of our strategic consulting, we identified an arm’s-length intercompany interest rate opinion amidst the recent downturn in commercial real estate. The end goals: flexible related-party financing while still receiving the benefits of an arm’s length interest tax deduction above the current low applicable federal rates (AFRs).  

ABC saved millions of dollars while we delivered a supporting interest rate range substantiated by in-depth market data and a comprehensive written report.  

Client Example # 2: International Real Estate Loan

XYZ Mining Company is a $10 billion global commodities and real estate developer. We performed an arm’s-length intercompany interest rate opinion in 2005 for use in developing XYZ’s vast real estate properties in South Florida. XYZ’s end goals also included flexible related-party financing and the benefits of an arm’s-length interest tax deduction above the prevailing low applicable federal rates (AFRs).   XYZ saved significant resources as part of the planning process.

NAV's team next delivered an intercompany interest rate range substantiated by market data and a comprehensive written report. In addition, due to the downturn in South Florida real estate that emerged in 2006, these after-tax cash flow savings were instrumental in sustaining XYZ’s development of high-end Florida real estate following the 2007-2009 property downturn.

Client Example # 3: Working Capital Loan

ABC Real Estate Company also wanted to replace its third-party revolver loan with an intercompany credit line to be used for working capital needs. We researched both private and public market data for the arm’s-length interest rate range. Our cross-discipline team of economic and real estate industry experts then researched prevailing benchmarks to synthesize the applicable findings.

How We Assist Clients

NAV's team delivers both summary and detailed reports to help analyze and defend our formal interest rate / private loan valuations. 

How We Are Transparent

We also perform periodic updates of these studies at drastically reduced fees to both substantiate a current analysis and save client money in the process.