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NNEG's rating reflects its strong and stable business profile as a small power producer (SPP) under Thailand's firm power-purchasing programme for small producers.
For LTVs between 0.35 and 0.85, there are states where the NNEG becomes effective and the provider will charge a positive margin on the interest rate.
The pricing of the reverse mortgage offered at t = 1 is similar: a margin [[pi].sub.LS,1] is determined to compensate the product provider for the NNEG. The value of the NNEG depends on the loan amount borrowed at t = 0, on the house price growth rate over the first period and on interest rates at t = 1.
First, the reverse mortgage has an asymmetric payout profile that allows the homeowner to benefit from house price increases but protects him from house price decreases through the NNEG. With the home reversion plan, the homeowner is fully exposed to the house price risk for the share of the home retained.
Low Demand Risk: About 72% of NNEG's electricity generating capacity is sold under the PPA, under which EGAT pays a capacity charge and offtakes at least 80% of contracted capacity.
Some Price Risk: The PPA allocates market risk to EGAT, allowing NNEG to pass on any rise in fuel costs and foreign-exchange risk, while its steam sales to industrial users are cost-plus pricing.
Near-Term High Leverage: Fitch expects NNEG's FFO adjusted net leverage to rise to 5.0x-6.0x in 2019-2020, from 4.3x in 2017, as the company plans to invest up to THB3 billion for its 60MW expansion plan over the next three years.
Single Operating-Asset Risk: NNEG's single-asset nature and small size with no earning diversification constrains its rating.
Although the NNEG is similar to a standard European put option, there are some very significant differences.
Besides the NNEG, there are other options that are related to real estate performance.
The core of this study is to develop a framework for pricing and managing the risks of the NNEG. We first model the randomness of the time to maturity by using a stochastic mortality model that takes account of the uncertainty of future death rates.
About 72% of NNEG's existing electricity generating capacity is sold under the PPA.
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