Loan-to-value and loan-to-collateral

Definition

These ratios compare what is owed with the collateral securing it. They are easy to compute and easy to compare wrongly, because each lender defines the numerator and denominator its own way.

Loan-to-collateral (LTC): loan balance plus accrued interest, divided by total collateral. The denominator may be gross collateral (before ineligibles and advance rates) or eligible collateral (after ineligibles). Always state which.
Loan-to-value (LTV): here, total debt against the collateral (loan, accrued interest and trade payables) divided by gross collateral value. Real estate lenders use LTV for loan ÷ appraised property value; the idea is the same.
Collateral equity: gross collateral less the liabilities against it, the borrower’s cushion.

A maximum LTC can be one of two things:

A covenant: a limit written into the loan agreement; breaching it is a default event.
A computed ceiling: the ratio implied by the advance rates, i.e. the highest LTC the borrowing base would allow. It is not a covenant, but reaching it means availability is zero.

Name which one is being reported.

Formula

Plain text:

LTC (gross)     = (loan balance + accrued interest) / gross collateral × 100
LTC (eligible)  = (loan balance + accrued interest) / eligible collateral × 100
LTV             = (loan balance + accrued interest + trade payables) / gross collateral × 100
equity          = gross collateral − (loan balance + accrued interest + trade payables)
equity %        = equity / gross collateral × 100 = 100 − LTV
implied max LTC = borrowing base / gross collateral × 100

LaTeX:

\mathrm{LTC} = \frac{L + I}{C}, \qquad \mathrm{LTV} = \frac{L + I + AP}{C_{\text{gross}}}

E = C_{\text{gross}} - (L + I + AP), \qquad \mathrm{LTC}_{\max}^{\text{implied}} = \frac{\mathrm{BB}}{C_{\text{gross}}}

How to pull it in DC305

DC305 is not the source for these ratios. Take:

Loan balance and accrued interest: the lender’s loan statement as of period end.
Trade payables: the accounting system’s A/P aged detail as of period end (see A/R and A/P aging).
Gross and eligible collateral: the borrowing base certificate for the same date. Cattle values within it trace back to DC305 head counts.

Typical range

Herd context: US dairy operating lines secured by cattle, receivables and inventory; terms vary by lender and borrower risk.

Implied max LTC on gross collateral: usually close to the weighted average advance rate, roughly 60–80%.
LTC covenants on operating lines, where used: often set in the 65–80% range.
LTV on intermediate (cattle and equipment) loans: commonly up to about 65–75% of appraised value.

Common mistakes

Not stating the denominator. LTC on eligible collateral is always higher than on gross; comparing them is meaningless.
Leaving out accrued interest or trade payables, or adding interest twice when the lender’s interest bill is also in A/P.
Calling a computed ceiling a covenant, or the reverse.
Using different dates for the loan balance and the collateral.
Comparing LTV across lenders without checking that the definitions match.