Additional Credit Risk Underwriting Analysis Matters

Credit risk underwriting potentially represents the greatest level of vulnerability in the entirety of the underwriting review process as, by and large, it relies upon subjective criteria.  This subjective criteria runs counter to the tenets of Rational Choice Theory that govern the actions of all participants in a market economy.  Accordingly, the INVIZEN model discounts the use of these elements in their entirety and replaces them with the fundamental principle that “revenue makes up for all ills”.  This means that, absent management issues, as long as revenues remain sustainable over the term of the investment (thus speaking to term risk management), sufficient revenues would always be available to satisfy the needs of creditors and investors, thus eliminating the reliance upon the subjective criteria altogether – and with it, a host of potential problems that are not manageable due to the fact the business is operating within the construct of a market economy.

The practical application of this measure is to have the INVIZEN model use a modified Z’-score system to force contributions of capital to the transaction until the forward-looking 24-month forecast window has a reasonable expectation of being sustainable based upon those liquidity resources alone, and not in reliance upon future sales revenues over that period in and of themselves.  The result is that the INVIZEN model utilizes the sum of the capital improvement reserve, current assets and operating reserve to compute a current ratio of at least $24:$1 for each successive monthly operating period.  This approach has the impact of potentially lowering the financial investment leverage of the at-risk capital investors, but the core argument of the INVIZEN approach is that this slightly higher contribution (and slightly lower accompanying yield) is traded for a much higher degree of certainty of outcome regarding the future yield that could be received.  This is an optional underwriting approach that is consistent with the conditions precedent to qualifying every securities issue for participation in the INVIZEN RTS Investment Protection Program and the participants are left to make their own choices, with the consequences being known to the parties for the purposes of allowing them to make more educated business decisions about how and when to deploy capital.