At AD&Co, we have developed a valuation model for whole loans that mirrors relative value in the securities market. We break down each loan into three risk components — senior, mezzanine, and subordinate — with the sizing of these risk components reflecting its credit quality. We then derive credit option-adjusted spreads (crOAS) from securities recently issued in the market. These benchmark crOAS are then used to price the loan’s risk components. The resulting prices are adjusted for transaction costs and are net of servicing.