Bankruptcy and Financial Distress Litigation

Valuation of Structured Products and Derivative Closeouts

Valuation of Structured Products and Derivative Closeouts

When a derivative counterparty declares bankruptcy, it triggers the termination of its derivative contracts. The derivatives counterparties to the bankrupt entity would make claims in bankruptcy courts based on the value of each derivative position as of the termination date. This process is referred to as derivative closeout. Although the International Swaps and Derivatives Association (ISDA) has prescribed standard processes for determining the value of derivatives in closeout situations, the implementation of these processes often yields results that are highly contested and require sophisticated analysis. This is especially true for illiquid or complex derivative contracts.

NERA has assisted clients in numerous derivative closeouts, including those that arise due to failure in meeting collateral calls. We have valued large derivative books that contained thousands of contracts, both vanilla and exotic in nature. Our valuations of complex financial instruments use real options, probability-weighted and dynamic cash flow models, the stock and debt approach to real property appraisal, and event studies to measure lost profits. Our experience with a variety of financial instruments, including structured products, credit default swaps, and other complex derivatives, allows us to quickly assess the impact of market conditions on the value of the derivatives.

Name Title Location Phone Email
Dr. Chudozie Okongwu Managing Director New York City
London
+1 212 345 5003
+44 20 7659 8568
chudozie.okongwu@nera.com
Dr. Faten Sabry Managing Director
Bankruptcy Practice Chair
New York City
London
+1 212 345 3285
+44 20 7659 8618
faten.sabry@nera.com
Dr. Sharon Brown-Hruska Director Washington, DC +1 202 466 9222 sharon.brown.hruska@nera.com
Jorge Baez Associate Director Miami
New York City
+1 305 341 5060
+1 212 345 5753
jorge.baez@nera.com
Oksana Kitaychik Associate Director New York City +1 212 345 1094 oksana.kitaychik@nera.com
Dr. Airat Chanyshev Senior Consultant New York City +1 212 345 7336 airat.chanyshev@nera.com
William P. Hrycay Senior Consultant New York City +1 212 345 1518 william.hrycay@nera.com
Title Type Author
Not All MBS Settlements Are Equal White Paper By Faten Sabry, Sungi Lee, and Linh Nguyen