Percentile Pricing

Percentile pricing is the practice of drawing a priced figure from a specific, disclosed percentile of a settlement, award, or duration distribution, rather than from its mean or median alone, with the choice of percentile reflecting the capital's actual risk tolerance rather than a default convention applied without examination. A conservative facility reserving against downside exposure should price closer to a lower percentile, accepting a wider gap to the mean in exchange for a smaller probability of being wrong on the low side, while a position seeking upside participation can reasonably price closer to the mean, provided it discloses that choice alongside the tail it is accepting. Percentile pricing also lets different layers of the same capital structure price the same underlying distribution differently and consistently: a senior lender in a waterfall might price against a conservative low percentile while a residual equity holder's return depends on the full distribution's upper range, and both parties can reference the same disclosed distribution rather than working from separately negotiated, potentially inconsistent estimates, which is what keeps a multi-layer capital structure priced coherently rather than as a set of disconnected bets each side made on its own private, unshared assumptions about the same underlying matter.