LSTA, Inc. (“LSTA”), the trade association for the U.S. corporate lending market, today released a report detailing the valuation framework for performing Level 3 loans. The report highlights the approaches adopted by managers, investors, and regulators to enhance rigor and transparency in valuing private corporate credit (PCC) assets.

Unlike broadly syndicated loans (BSLs), most PCC investments lack observable market prices, instead requiring determination of fundamental value. This report, developed by LSTA staff and members active in the PCC market, examines the common methodology used to value Level 3 assets and the governance models that mitigate potential conflicts of interest.

“As private credit continues to expand, LSTA remains dedicated to maintaining the integrity of the PCC market,” said Sean Griffin, CEO of LSTA. “By providing a clear view into how Level 3 valuations are determined, this report offers further visibility into the PCC market and supports our members in advancing consistent and reliable valuation practices.”

The report demonstrates practical applications of valuation techniques through case studies of hypothetical companies using a discounted cash flow model to determine fair values. To reveal how valuations adapt to changing market dynamics and company fundamentals, the case studies examine four scenarios: stable markets, market selloff, market rally, and company-specific events.

This report intends to provide an overview of the valuation process for PCC loans for educational purposes only and is not meant to set or convey best practices.

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