Liquidation values

Orderly Liquidation Value

Orderly Liquidation is often the amount that banks plan on if they ever were to receive an asset through foreclosure or return of a lease. This is the appropriate value for a bank to consider internally, even if the contracts protect Fair Market Value. A bank is not a market participant and can not hold the asset; therefore, they are naturally disadvantaged when entering the marketplace. The eventual buyer is aware of the compulsion that the bank must sell the asset in a certain period of time.

Orderly Liquidation is also used in various tests for financial reporting and other interesting Fair Market Value tests.

Forced Liquidation Value

Forced Liquidation Value is the most extreme of marketable situations for an asset. These values are typically provided for quick sales and auctions of plants during sudden closures.

Banks also request these values for transactions that are subject to some of the following concerns, which might make OLV unobtainable.

  • Historically volatile markets such as Oil & Gas Equipment

  • Overproduction changing marketshare dynamics

  • Format Wars

  • Innovative technologies causing shorter lifecycles

  • Niche Markets

Just because a Forced Liquidation Value is being requested does not mean the equipment isn’t worth the investment. If your banker is requesting FLV, talk to them directly about their concerns. Often the more information you can provide, the better the financing relationship.

“Expect the best, plan for the worst and prepare to be surprised." - Denis Waitley