What is net orderly liquidation value (NOLV) and its relevance in workouts?

• A. Estimated net proceeds from an orderly liquidation; used to gauge recoveries and deficiency risk.
• B. A measure of annual net income.
• C. A type of collateral.
• D. A method of credit scoring.

Answer: (A)

Net orderly liquidation value describes the estimated net proceeds you would expect to receive if the collateral or the business were sold in an orderly liquidation, allowing for a reasonable marketing period, professional sale processes, and all selling costs, taxes, and distributions deducted. In workouts, this figure is central because it shows how much the lender could realistically recover from the asset under distress, helping gauge recoveries and any deficiency risk if the loan is liquidated rather than restructured. It sits between a quick, fire-sale value and a going-concern value, reflecting a realistic, non-rushed sale scenario. This makes NOLV a practical tool for deciding whether to push for a workout or proceed with liquidation, and for setting reserves for potential losses.

The other options don’t fit because this concept is not about measuring annual net income, not a type of collateral, and not a method of credit scoring.