Emerging Market Corporate Credit Workshop

Previous participants of the five-day Intensive Corporate Credit workshop should contact us before registering.

Course Objectives

The overall goal of this four-day workshop is to enhance existing analytic skills, using a structured and systematic approach to evaluate the credit standing of a company and the attractiveness of the risk ~ return profile of a transaction. Participants are encouraged to become more time efficient, focused and concise in articulating credit judgement.

Specifically participants will be equipped to:

• Apply a four-step model to credit: purpose, payback, risks and structure that focuses on the key challenges of emerging market credits – generating cash-flow profits in growth markets and refinancing in volatile conditions
• Use qualitative frameworks (sector, business model, management) combined with quantitative tools (ratios, cash-flows, forecasts) to distinguish strong and weak performers and substantiate lending decisions
• Anticipate and sensitise a company’s future performance in stable and / or volatile markets using a cash-flow approach to ascertain its ability to service / refinance its debt as it comes due
• Use market indicators, where available (e.g. commodity prices, macro indicators, ratings, equity and debt prices) to understand refinancing risk and the market view on a credit
• Critique debt structures to assess both the ability to meet the commercial needs of the borrower and protect the lender’s interests.

This workshop makes extensive use of case studies, live examples and exercises to ensure that the training is highly interactive, practical, topical and challenging. Case studies are drawn from a range of industries and emerging markets (primarily BRIC, Latin American, and Asia) in order to provide participants with the opportunity to practise the application of the analytic frameworks and tools in context. The emphasis is on developing critical judgement; participants are required to be focused, practical and realistic in their approach.

Target Audience

Experienced commercial and investment bankers and risk professionals involved in the provision of credit and related products to corporate clients in emerging markets in: Eastern Europe, Latin America, Asia and the Middle East and Africa.

The majority of Fitch Training programmes are offered at an intermediate and advanced level. There are no specific prerequisite courses to attend our programmes, however some topic knowledge maybe required. Please refer to the target audience to see what level of prior knowledge is required for a specific course.

Content

ANALYTIC OVERVIEW

Emerging market credit analysis

• Compare and contrast the analytic techniques used to assess the credit standing of companies in emerging and developed markets
• Techniques to help cope with lack of disclosure and transparency

Structured approach to analysis

• A framework for credit assessment: purpose, payback, risks and structure
• Purpose: identifying the borrower and use of funds; the challenges of lending to multiple borrowers within a group structure
• Payback: linking credit assessment to primary and secondary sources of repayment
• Risks to repayment: sector and company specific analysis to evaluate debt servicing ability
• Structure: Setting terms and conditions of lending to meet the commercial needs of a company while protecting lenders’ interest

Market perspectives

• Quantifying credit risk: Probability of default and loss given default; migration risk:
• Rating agency approach to credit: an overview

Market indicators as early warning signals of refinancing risk

• Macro and commodity indicators giving early signals of systemic risk
• Credit ratings: company / sovereign rating trend and outlook
• Debt market: company / sovereign bond spreads and CDS levels compared to relevant rating curves
• Equity signals: share price movements and key multiples

RISK I: MACRO CONSIDERATIONS

The operating environment

• Understanding key drivers of sovereign risk
• Sources and sustainability of growth: domestic and export drivers
• Key macro vulnerabilities of emerging markets: FX, Government intervention, systemic risk, high inflation: impact of key variables on differing sectors
• Distinguishing between markets in different stages of transition

Sector

• A structured approach to understanding key drivers of sector performance: using the Porter model to anticipate cash-flow drivers
• Understanding the structure of an industry, the key players, and its growth dynamics
• Sector profitability: assessing competitive forces that influence operating profits
• Anticipating cash-flow performance: key sector financial drivers of sales growth, operating profit margins, working capital requirements, and capital expenditure needs
• Critical success factors and a company's ability to sustain a competitive advantage
• Using the understanding of the sector to create expectations about a company’s balance sheet and income statement performance

RISK II: BUSINESS RISK

Business strategy

• Assessing a company's strategy and position in the marketplace and the viability of its business model
• Understanding the strategic direction of the firm and its impact on the credit standing of the company
• Assessing the risks and rewards of diversification, vertical integration and growth

Asset management and cash flow impact

• Key ratio and cash-flow indicators to evaluate asset efficiency and impact on cash-flow
• Uncovering and assessing key risks: understanding a company’s business cycle
• Financing the business cycle: defining net working capital
• Working capital challenges: availability, cost and quality of supplies, inventory management, relative power of buyers and suppliers, logistics / supply chain management and distribution challenges
• Off-take agreements: finding the loopholes and risks in long term contracts
• Overtrading – impact on cash-flow of high growth and declining margins
• Assessing capex needs: the challenges of measuring fixed asset efficiency
• Use of peer analysis, sector specific ratios and industry bench-marks to assess performance

Earnings dynamics and cash flow analysis

• Key ratio and cash-flow measures for evaluating sales, earnings, operating and free cash-flow
• Evaluating the quality of the income stream and the cash-flow effect
• Defining success: bench marking sales growth and profit margins
• Accounting considerations: unravelling the cash-flow impact of income from associates, minority interest, pension costs , derivatives (foreign exchange and interest rate management decisions)
• Commodity price exposures on the supply and demand side
• Identifying, quantifying and managing foreign exchange exposures
• Forecasting and sensitising key cash-flow variables: sales, profit margins, working capital and capex needs

RISK III: FINANCIAL RISK

Financial strategy

• Using business risk to gauge the appropriate level of financial risk
• Matching the needs of the business with the term and currency of the debt

Financial flexibility and liquidity

• Determining financial flexibility: measuring liquidity: ratio and cash-flow tools
• Refinancing risk: evaluating payment readiness, debt repayment structure and contingency liquidity
• Assessing the availability of committed lines of credit

Solvency and debt service capability

• Key ratio and cash-flow benchmarks for evaluating solvency and debt servicing ability
• Defining, measuring and evaluating solvency using ratios and the cash-flow statement
• Assessing the control of the cash-flow when the company has significant MI shareholders
• Using cash-flow forecasts to assess debt service capability
• Assessing debt capacity based on present value of cash-flow available for debt service

RISK IV: MANAGEMENT AND OWNERSHIP

Ownership

Complex group structures:

• Tracing ownership and influence
• Related party transactions: identifying risks to lenders
• Multiple listed businesses and ownership structures controlled and dominated by a powerful shareholder

Government as a dominant shareholder:

• Scope for authorities to influence decisions that adversely affect lenders
• Comfort to lenders or a source of risk?

Corporate governance:

• Benchmarks for corporate governance in listed and family companies
• Early signals of lack of integrity, fraud / serious misdemeanours
• Lack of transparency
• Wealthy family groups that have political influence / control over major industries

Management

• Management competence: what are we looking for, how is it measured?

Assessing management in emerging market companies:

• Depth and level of experience
• Succession, nepotism and other challenges for family owned companies
• Civil servants as senior position in strategically important industries
• Succession issues

Corporate aims and goals: their effect on the company's future creditworthiness

STRUCTURE

Assessing the structure of the transaction - debt, ranking, safeguards and pricing

• Debt profile - assessing the appropriateness of the structure in terms of amount, currency and maturity
• Ranking - understanding different ways subordination can be achieved
• Safeguards - the use of covenants and other techniques to mitigate risk
• Credit pricing: benchmarking and evaluating the risk ~ return profile of the transaction.

Workshop Times