Certification in Distressed Business Valuation - CDBV

The Certification in Distressed Business Valuation (CDBV) is a unique certification program in valuation of distressed assets including distressed and/or bankrupt companies. In 2004, the Association of Insolvency and Restructuring Advisors launched the CDBV program to train and accredit professionals in this highly specialized area of business valuation. The intensive CDBV training program consists of a three-part course of study and uniform written examination.

OVERVIEW OF OBJECTIVES
The CDBV program’s course of study is comprehensive and advanced. Through successful completion of the three-part course of study and comprehensive examinations, candidates will have achieved and demonstrated proficiency necessary to:

• Apply court decisions to the appropriate standards of value, premise of value and valuation methodology
• Properly adjust cash flows to capture the impact of distress/bankruptcy
• Apply the adjusted present value method
• Calculate and apply market multiples for distressed companies and/or distressed transactions
• Estimate the cost of capital for distressed companies
• Estimate reorganization value
• Apply the asset approach for the liquidation analysis required in the disclosure statement
• Determine solvency in preference and fraudulent conveyance issues
• Assess the size of the equity cushion for adequate protection

COURSE OF STUDY AND EXAMINATION
The content of the CDBV course of study and examination is divided into three parts:
Part 1: Understanding the Bankruptcy Code and How It Impacts Valuation of Distressed Businesses
Part 2: Advanced Business Valuation
Part 3: Application of Business Valuation Concepts to Bankruptcy and Other Distressed Situations

PREREQUISITES FOR PROGRAM ENROLLMENT
To enter the program, candidates for the CDBV designation must:

1. Be a Regular or Government/Academic Member of AIRA in good standing.
2. Possess at least a bachelor's degree from an accredited college or university
3. Submission of completed CDBV Program application.

Please refer to the information on each of the three course parts for specific course prerequisites.

REQUIREMENTS FOR CERTIFICATION

• Completion of course of study and passing exam—all three parts of the course of study and  uniform written examination (with the exception of the following waivers) must be successfully completed within a four-year period of the date of the first course taken.       
• Part 1 is waived for candidates that hold a CIRA or CTP certificate.
• Part 2 is waived for ASA-Business Valuation, CBA, CFA, CPA with ABV, CVA/AVA.
• Demonstration of significant valuation experience—candidates must submit to the Certification Committee a detailed resume of assignments and duties of engagements demonstrating significant experience with valuation of distressed entities and/or assets. Whether or not a candidate’s experience satisfies the specialized experience requirement is subject to the judgment of the Certification Committee. Evidence to satisfy this requirement is divided into three parts, submitted using these forms available on the website and other documents as needed:
  • Experience Requirement Form
  • Client Experience Forms (3)—one for each of 3 different clients
  • Valuation Report—at least one valuation report or approved equivalent demonstrating analyses performed by candidate
• Pledging of oath—to uphold the Code of Professional and Ethical Conduct
• Three letters of professional reference— attesting to candidate’s character, professional experience, and specialized and/or diverse expertise with respect to valuation of distressed businesses, restructuring and/or insolvency matters. Only one letter of reference may be from the current employer and that letter must be from a current supervisor.
• AIRA membership in good standing—must be continued in order to maintain active status and make use of the CDBV designation

CPE CREDIT FOR CDBV COURSES
Twenty CPE credits are available for Part 1, and 28 CPE credits are available for each of the Part 2 and Part 3 courses.

RETAKING AN EXAMINATION
If an applicant fails to pass an examination, it may be retaken with another section of the course and examination for $200, or separately, without the course, for $75.

ADDITIONAL INFORMATION
For detailed standards and requirements for certification as determined by the Board of Directors, see AIRA Bylaws, Article VII

PROGRAM DIRECTOR
The Director of CIRA & CDBV Programs , Terry Jones, may be contacted at AIRA’s office or by email to tjones@aira.org

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CDBV PART 1:
UNDERSTANDING THE BANKRUPTCY
CODE AND HOW IT IMPACTS VALUATION
OF DISTRESSED BUSINESSES
(Waived for CIRAs and CTPs)    

The overall objective of CDBV Part 1 is to provide a comprehensive understanding of the concepts in the Bankruptcy Code that are important in valuing distressed businesses including those in chapter 11. The course of study for CDBV Part 1 involves advance preparation consisting of reading assignments and answering of multiple choice questions based on the course material. Course materials are mailed four weeks prior to the start date of the course session. The two-and-a-half day session comprises two days of instruction and a three-hour exam on the third day.

Prerequisites for Taking CDBV Part 1

1. Be a regular member of AIRA in good standing.
2. Possess (at least) a bachelor's degree from an accredited college or university.
3. Completion of five years of accounting or financial experience.
   

Relevant experience includes public accounting, crisis management, consulting, investment banking, credit management, loan workout or applicable government experience (e.g. financial analyst with the Office of U.S. Trustee; Pension Benefit Guarantee Corporation; FBI and SBA).

CDBV Part 1 Waiver
Part 1 of the CDBV program is waived for individuals that are either:

1. A current CIRA certificate holder or candidates who have successfully completed all three parts of the CIRA examination provided the applicant meets the accounting or financial experience.
2. A current CTP certificate holder.

CDBV Part 1 Course Content

• Nature of bankruptcy process
• Automatic stay and adequate protection
• Leases
• Property recovery including preferences and fraudulent transfers
• Fresh start reporting
• Cash collateral and DIP Financing
• Nature and determination of claims
• Disclosure statement
• Nature of chapter 11 plans
• Right to file a plan
• Acceptance of plan
• Confirmation of plan
• Tax impact of plan
• Process of developing a chapter 11 plan

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CDBV PART 2:
ADVANCED BUSINESS VALUATION 
(Waived for ASA-Business Valuation;
CBA; CFA; CPA/ABV; CVA)

The overall objective of CDBV Part 2 is to provide a comprehensive understanding of the principles and concepts of business valuation. The course of study for CDBV Part 2 involves advance preparation consisting of reading assignments and answering of multiple choice questions based on the course material. Course materials are mailed four weeks prior to the start date of the course session. The three-and-a-half day session comprises three days of instruction and a four-hour exam on the fourth day.

Prerequisites for Taking CDBV Part 2

Successful completion of CDBV Part 1 or CTPs and those who have completed Part 2 of the CIRA program

CDBV Part 2 Waiver
Part 2 of the CDBV program is waived for individuals that hold the following certifications: ASA-Business Valuation, CBA, CFA, CPA/ABV, CVA.

CDBV Part 2 Course Content
Cost of Capital—Equity

• CAPM vs. build-up method
• Determinants of betas
• Issues with using historical betas
• Levering and de-levering betas
• Market risk premiums
• Alpha risk (unsystematic risk)

Cost of Capital—Debt

• Use of long-term financing rates
• Use of ratings/default spread
• Estimating synthetic ratings

Weighted Average Cost of Capital

• Capital structure weightings
• Internal consistency and the iterative process

Income Approach

• Firm valuation vs. equity valuation
• Capitalized cash flow and discounted cash flow methods
• Cash flow projections in the discrete period
• Estimating terminal value
• Ensuring internal consistency of model parameters
• Testing for reasonableness/common errors

Market Approach

• Guideline company, similar transactions & historical internal transactions methods
• Performing comparative financial analysis
• Calculating, adjusting and applying multiples
• Decomposing the market multiple

Asset Approach

• Approaches to valuing assets and liabilities
• Common net asset value adjustments
• Intangible assets

Other Valuation Topics

• Synthesizing results
• Ownership characteristics and discounts/premiums

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CDBV PART 3:                                                                                    
APPLICATION OF BUSINESS VALUATION
CONCEPTS TO BANKRUPTCY AND OTHER
 DISTRESSED SITUATIONS

The overall objective of CDBV Part 3 is to develop comprehensive understanding of how to apply principles and concepts of business valuation to bankruptcy and other distressed situations. The course of study for CDBV Part 3 involves advance preparation consisting of reading assignments and answering of multiple choice questions based on the course material. The course materials are mailed four weeks prior to the start date of the course session. The three-and-a-half-day session comprises three days of instruction and a four-hour exam on the fourth day.

Prerequisites for Taking CDBV Part 3

1. Successfully complete Part 1 (or received an approved waiver).
2. Successfully complete Part 2 (or received an approved waiver).
3. Individuals who do not meet the requirements of both Part 1 and 2 may attend Part 3, but they are not eligible for certification.
4. Part 2 will be waived for those applicants that have one of the following certifications: ASA-Business Valuation; CBA; CFA; CPA/ABV; CVA/AVA.

CDBV Part 3 Course Content
Standard of Value/Premise of Value

• Bankruptcy Code and statutes
• Court interpretations and decisions

Cost of Capital – Equity

• Applicability of CAPM in distress situations
• Alternative options for estimating cost of equity in distress situations
• Applicability of historical beta in restructuring/bankruptcy
• Estimating unsystematic risk in distress/bankruptcy

Cost of Capital – Debt

• Estimating synthetic ratings
• Applicability of YTM bond calculations
• When to use an after-tax cost of debt

Weighted Average Cost of Capital

• Identify an optimal capital structure
• Inapplicability of WACC with a changing capital structure

Income Approach

• Additional cash flow considerations for companies in distress and/or bankruptcy
• How and when to apply the adjusted present value method
• Incorporating the potential truncation of cash flows
• Assessing potential tax implications of cancellation of debt (COD) income and the rights to net operating losses (NOLs) under transfer of ownership

Market Approach

• Selecting appropriate comps for distressed companies
• Calculating market value of invested capital for distressed companies
• Applicable similar transactions

Asset Approach

• Identification and valuation of assets/potential recoveries
• Identification and valuation of liabilities/claims
• Incorporation of wind-down costs
• Liquidation analysis for disclosure statement

Applications in Bankruptcy

• Plan of reorganization
• Adequate protection
• Claims determination
• Recovery actions and solvency analysis