Share

Why Solvency Opinions are Important in Today’s Economic Climate

A solvency opinion is a statement from an independent financial expert that assures a company’s board of directors and/or lender that a transaction is not likely to result in bankruptcy or liquidation. The opinion, which typically takes the form of a letter, expresses an independent expert opinion on a borrower’s ability to remain solvent under the burden of additional liability, to pay debts as they mature, and to continue operations as a going-concern in dynamic economic conditions. Solvency opinions are often issued in connection with major corporate transactions, such as dividend recapitalizations, restructurings, debt issuances, spin-offs, and asset sales.

Solvency opinions have become increasingly important due to recent economic conditions, including increased volatility in the financial markets, the war in Ukraine, rising inflation, elongated holding periods for private equity-backed companies, and continued uncertainty about the long-term effect COVID-19 will have on the global economy. In such conditions, businesses need to be able to demonstrate to their stakeholders that they are financially sound and able to withstand economic shocks. Although not typically required by law or a substitute for a board’s own judgment, a solvency opinion provided by an independent financial expert helps boards demonstrate that they executed their fiduciary duty of care, acted in good faith, and conducted appropriate due diligence in connection with the transaction. An independent solvency opinion also mitigates the risk of fraudulent conveyance claims and can improve borrowing terms.

How Centri Can Help

With decades of experience and the support of our Opinion Committee, Centri’s opinion team is ideally suited to provide a truly independent, defensible solvency opinion that can help boards make prudent, well-informed decisions. If you are considering a transaction, consult with your attorney and Centri’s opinion team to see if obtaining a solvency opinion is the right course of action for your company.

Charles Higgins

Managing Director | CFA

Charles is a Managing Director at Centri Business Consulting. He has more than 25 years of experience in providing fairness and solvency opinions in connection with going private transactions, spin-offs, related-party transactions, recapitalizations, and restructurings. He Joined Centri in March 2021, where he utilizes his skillset across a wide variety of industries, including technology, life sciences, healthcare, manufacturing, retail, professional services, and alternative energy. View Charles Higgins's Full Bio