Q: Why do we exclude checking accounts in estimating guarantor cash support in a crisis?
A: We assume the guarantor will use cash in his or her checking account for daily living expenses and payment of ongoing personal monthly bills, so we have no idea how much might be available in a crisis to help support company debt service. Therefore, it seems practical to assume no cash support from checking account balances, which likely vary considerably over time.
Note that we can feel relatively certain about cash available from a savings account since these types of accounts are usually quite stable. And note, too, that our 80% estimate of cash from the reported market value for securities is somewhat of a heroic assumption. We don't know when a crisis will occur and obviously don't know what the cash value of the marketable securities will be at that point.
Course overview: Guarantor Analysis, Global Cash Flow, and the Second Way Out