For Jersey Mikes, what level of assumptions are used in the estimation of fair value of debt instruments?
Jersey_Mikes Franchise · 2025 FDDAnswer from 2025 FDD Document
usted quoted prices for identical assets or liabilities in active markets that the plan has the ability to access. Such inputs include quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
The asset or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Source: Item 22 — CONTRACTS (FDD page 77)
What This Means (2025 FDD)
According to Jersey Mike's 2025 Franchise Disclosure Document, the company uses Level 2 assumptions when estimating the fair value of its debt instruments. This means that the valuation relies on observable inputs, such as quoted prices for similar assets or liabilities, or other inputs that can be corroborated by observable market data for the full term of the assets or liabilities.
Level 2 assumptions sit in the middle of a three-tiered hierarchy. Level 1 relies on unadjusted quoted prices for identical assets or liabilities in active markets. Level 3 relies on unobservable inputs supported by little to no market activity, using pricing models, discounted cash flow methodologies, or significant judgment.
Jersey Mike's estimates fair value using quoted market prices and current observable market borrowing rates for similar types of borrowing as of the measurement date. While Jersey Mike's believes its valuation methods are appropriate, the FDD notes that using different methodologies or assumptions could result in a different fair value measurement. This is a standard disclaimer, as fair value estimations inherently involve some degree of subjectivity and market conditions can fluctuate.