Question-and-Answer Session
Operator
(Operator Instructions) Your first call comes from Greg Mason – Stifel Nicolaus.
Greg Mason – Stifel Nicolaus
First I wanted to talk about your Deutsche Bank credit facility. If we're remembering right that has an $88 million minimum net worth covenant. You guys are at $91 million right now and Seth, you just said that the levered loan markets since August has significantly deteriorated, so is it reasonable to expect that you will violate that covenant next quarter and are you having discussions with Deutsche about that?
Seth Katzenstein
You're correct. Minimum net worth is $88 million and at the end of the quarter we had about a $3.6 million in our cushion on that covenant. We won't test that covenant again until January when we have to report our January borrowing base, so we have a little bit of time on that to see how the markets perform.
As respect to discussions with Deutsche Bank, it's a little premature to comment on that, but that is certainly one item under consideration.
Greg Mason – Stifel Nicolaus
What are your thoughts in discussions with Deutsche, the concerns about the line just being pulled because of the credit environment versus being re-priced.
Seth Katzenstein
We have a good relationship with Deutsche Bank. They've been supportive of us since we put the facility in place shortly after going public, and we look forward to continuing to work with them. But it's premature to comment on anything specific about the facility at this time.
Greg Mason – Stifel Nicolaus
Moving on the CLO, you said the decline in equity was due to some changes in your assumptions. Can you tell us what you're assuming, for example [queue mode] of loss assumptions for the CLO and how are those trending today relative to your expectations?
Richard Allorto
There are two primary modeling assumptions. You calculate the fall rate assumption in looking and modeling out the future cash flows. Historically, we have generally looked at as a firm, the 2% default case and again, there's some current estimates in the market and these are forecasted estimates of a much higher expected default rate. So we did increase that assumption.
The next major assumption is the discount rate in your net present value calculation, and that's one more derived at the current environment we're seeing in conjunction with the fair value accounting and trying to determine what we think we could exit this for and large of a discount we think a potential buyer would require.
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