How did The Standardx estimate the fair value of its preferred equity investments?
The_Standardx Franchise · 2025 FDDAnswer from 2025 FDD Document
We estimated the fair value of these HTM debt securities to be approximately $287 million and $270 million at March 31, 2025 and December 31, 2024, respectively. The fair values of our preferred equity investments, which are classified as Level Three in the fair value hierarchy, are estimated using probability-based discounted future cash flow models based on current market inputs for similar types of arrangements. The primary sensitivity in these models is the selection of appropriate discount rates and probability weighting. Fluctuations in these assumptions could result in different estimates of fair value. The remaining HTM debt securities are classified as Level Two in the fair value hierarchy due to the use and weighting of multiple market inputs being considered in the final price of the security.
Source: Item 1 — Financial Statements. (FDD pages 156–187)
What This Means (2025 FDD)
According to The Standardx's 2025 Franchise Disclosure Document, the fair values of its preferred equity investments are estimated using probability-based discounted future cash flow models. These investments are classified as Level Three in the fair value hierarchy. The estimation relies on current market inputs for similar types of arrangements.
The primary factors influencing these models are the selection of appropriate discount rates and probability weighting. These are considered Level Three assumptions, meaning they involve significant management judgment and are not readily observable in the market. Because of this, fluctuations in these assumptions could result in different estimates of fair value.
For a prospective franchisee, this means that the reported value of these investments is subject to change based on market conditions and the assumptions used in the models. It is important to note that the use of Level Three inputs indicates a higher degree of uncertainty compared to investments with readily available market prices (Level One) or those derived from observable market data (Level Two).