Intensive Corporate Credit

Course Objectives

Participants will be equipped to:

• Apply a 4-step model to assess the creditworthiness of a borrower - Purpose, Payback, Risks and Structure
• Evaluate the performance of a company based on a qualitative approach, backed by appropriate quantitative analysis (ratios and cash-flow tools) to support a lending decision
• Use appropriate market indicators, where available (e.g. ratings, equity indicators, bond and CDS spreads) to understand refinancing risk and the market view on a credit
• Anticipate a company’s future performance and credit outlook using a cash-flow approach to ascertain its ability to service/refinance its debt as it comes due
• Sensitise forecasts for key variables and interpret the results and their effect on creditworthiness
• Critique bond and loan 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 number of countries and industries and provide participants with the opportunity to practice the application of the analytic frameworks and tools in context.

Target Audience

For fixed income professionals, lending bankers, and other finance professionals working in credit risk management and credit products areas, including relationship management and debt origination.

Participants should have a firm grasp of accounting before attending this programme.

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

Quantifying credit risk

• Cost of credit - probability of default and loss given default
• Credit charges - expected loss at different rating levels
• Migration risk - focusing on the credits with the highest risk of migration

Structured approach to analysis

• Rating agency approach to credit - issue and issuer
• A framework for credit assessment - purpose, payback, risks and structure
• Purpose- identifying the borrower and use of funds
• Payback- linking credit assessment to primary and secondary sources of repayment
• Risks to repayment- the need for a sector and company analysis to evaluate debt servicing ability
• Structure- assessing the ability of the debt to meet the commercial needs of a company while protecting lenders’ interest

Market indicators of credit risk

• Market indicators as early warning signals of refinancing risk
• Credit Ratings - rating trend and outlook
• Debt market - bond spreads versus rating curves
• Equity signals - share price movements and key multiples

RISK I: MACRO CONSIDERATIONS

The operating environment

• Impact of key macro variables on company performance
• Cyclicality - economic, commodity, technology etc.
• Social and political considerations
• Government regulations, taxation and licensing requirements

Sector

• Understanding the structure of an industry and the key players operating within it
• Growth dynamics and potential of a sector
• Competitive forces - using the Porter Model to assess sector profitability
• Evaluating and quantifying main industry risks
• Key sector financial drivers - expectations for 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 in the future

RISK II: COMMERCIAL VIABILITY

Business strategy and earnings dynamics

• Understanding a company's business dynamics and market strategy to anticipate how these are likely to be reflected in their financial statements.
• Key ratio and cash-flow benchmarks for evaluating earnings and operating cash-flow
• Assessing the strategic direction of the firm - sales and operating profitability, sources of operating cash-flow, trend and peer analysis
• Accounting considerations - impact of IFRS, potential accounting distortions
• Methods of evaluating overall performance - ROE, economic value added and market indicators such as total shareholder return and enterprise value/EBITDA
• Quantifying performance looking beyond EBITDA - defining, calculating and using operating cash-flow to analyse profitability
• Forecasting and sensitising key variables - sales, EBITDA and non-operating earnings

Asset investment

• Using the business conversion cycle to create expectations about balance sheet and income statement performance of companies in the same sector
• Key ratio and cash-flow indicators to evaluate asset efficiency and estimate free cash-flow
• Use of peer analysis and industry bench-marks to assess and compare performance
• Forecasting and sensitising key variables - working capital and capital expenditure

RISK III: FINANCIAL RISK

Financial strategy

• Using business risk to gauge the appropriate level of financial risk
• Understanding corporate treasury objectives - tenor matching, funding and liquidity needs
• Analysing target capital structures - the effect of leverage on shareholder returns

Financial flexibility and liquidity

• Refinancing risk - evaluating payment readiness, contingency liquidity and maturity profile of debt
• Determining financial flexibility - measuring liquidity - ratio and cash-flow tools.
• Understanding financial risk in financial instruments used

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
• Using rating medians to benchmark a company’s financial standing
• 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 SHAREHOLDERS

• Management competence - what are we looking for, how is it measured?
• Corporate aims and goals - their effect on the company's future creditworthiness
• Evaluating shareholder support and influence

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 - evaluating the risk ~ return profile of the transaction.

Workshop Times