-86-
Mr. Huck criticized Mr. Fuller's rebuttal report, claiming:
(1) Rather than doing an independent valuation, Mr. Fuller merely
used Mr. Huck's analysis and applied an incorrect discount rate
(equity rate of return) to those numbers; (2) Mr. Fuller did not
consider recourse debt in determining cash-flow, but rather assumed
that any portion of the purchase price not funded with nonrecourse
debt would be funded with equity; and (3) a typical buyer of the
lease portfolio would finance its acquisition with a combination of
nonrecourse debt, recourse debt, and equity. While Mr. Huck
discounted "gross" cash-flows (net only of nonrecourse debt) based
on the market rate for such assets (which reflected the required
blended cost of capital), Mr. Fuller discounted the same cash-flows
using an equity rate. These cash-flows did not consider recourse
debt service, operating expenses, and taxes. Because Mr. Fuller
did not apply his equity rate against equity cash-flows, Mr. Huck
believes that Mr. Fuller's analysis is seriously flawed. Simply
put, Mr. Huck claims that Mr. Fuller used an equity rate for
purposes of discounting the lease portfolio's cash-flows, whereas
those cash-flows included a return on debt. In Mr. Huck's view,
Mr. Fuller should have based his discount rate on the market
receivable yield which accounts for the expected debt leveraging.
57(...continued)
the portfolio below $130,184,420) because he did not believe he
had sufficient information to do so.
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