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 Corporate Credit Analysis T2042 QR Code
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Corporate Credit Analysis



Corporates around the world, especially in Europe and the US, face a number of difficulties that make their working environment more difficult than it was during the financial crisis of 2008–2009. Lenders and investors are once again confronted with widespread and severe credit deterioration across sovereigns, corporates, and other sectors as a result of the difficulties of COVID-19. Credit analysis is becoming more difficult due to a confluence of factors including high cost inflation, significantly higher energy prices, higher and rising interest rates, political unpredictability, worsening geopolitical threats, and declining consumer demand. The degree of ambiguity and upheaval appears destined to stay high for some time. In order to prevent credit losses and generate an optimal risk/reward profile from their exposures, it is even more crucial for creditors and investors to have a solid understanding of how to analyze a variety of credit risks.

Course Objectives

At the end of this course, participants will be able to know:

  • how to use a structured method for corporate credit analysis
  • how to do in-depth financial risk analysis
  • how to calculate important credit ratios
  • how to use Excel for financial modeling and forecasting
  • how to use sensitivity analysis
  • how to analyze leverage in depth, including the factors that affect leverage
  • how to analyze structural elements including ownership, double leverage, structural subordination, and contractual subordination about credit ratings and how they are determined how to analyze the effect of corporate finance activities on credit quality
  • How to model and analyze leveraged buyouts? Credit documentation and important covenants

Targeted Audience

  • Sell-side credit analysts
  • Analysts of credit counterparty risk
  • Managers of fixed income funds
  • Buy-side credit analysts in asset management
  • Sell-side debt capital market executives
  • investors in banks
  • Trades in fixed income and credit
  • People who sell credit or fixed income
  • Private equity professionals
  • Treasurers
  • Equity strategists and analysts
  • Internal auditors and compliance officers
  • Sales of equity and traders
  • Lawyers for corporate finance

Course Outline

Unit 1: Background to credit analysis

  • Credit analysis: What is it?
  • How are credit risk and quality assessed?
  • sources for paying off debt
  • establishing a structure for credit analysis

Income statement analysis from a credit perspective

  • forecasting and analyzing revenue
  • What are the main sources of revenue and what are the risks?
  • What are the major cost factors, their trends, and risks?
  • Variable and fixed costs
  • Currency, interest rate, and commodity hedging effects
  • Dealing with extraordinary items, gains/losses from hedging, restructuring charges, "one-off items," gains/losses from disposals, etc. to determine underlying EBITDA
  • Identifying financial costs and income
  • The effects of IFRS 16 Addressing concerns relating to equity-accounted businesses and NCI taxes
  • In case studies, essential operational and financial ratios (margins, interest cover, and dividend cover ratios) are calculated and analysed.

Unit 2: Cash flow statement analysis from a credit perspective

  • Net financing expense and tax paid are subtracted to arrive at net operating cash flow.
  • Defining investment spending cash flow in terms of gross and net
  • How to define cash flow from financing operations
  • Does the company produce enough cash flow to pay off debt and support capital expenditures?
  • Do recent investments increase value?
  • How are cash flow problems resolved?
  • Is the company giving too much money to its shareholders?
  • Updating the cash flow statement to reflect CADR

Balance sheet analysis from a credit perspective

  • Policies for combining
  • How the asset base is structured
  • PP&E, intangibles, entities with equity accounts, and investments are examples of current assets.
  • Cash, investments, derivative assets, cash commitments, restricted cash,
  • Exactly how are the assets valued? How likely are impairments or revaluations?
  • The assets' security value
  • What are the asset lifetimes and the outlook for maintenance and capital expenditures (capex) for growth?
  • Being aware of the capital intensity and operating leverage of the company
  • Comprising short-term debt, current obligations
  • NWC comprehension

Unit 3: Modelling and forecasting in Excel

  • Overview of appropriate spreadsheet procedures
  • Creation of a complete financial forecasting model
  • Assumptions, an income statement, a balance sheet, and a cash flow statement
  • cCeating macro- and rm-specific assumptions
  • What are the essential value drivers? Can they be modeled?
  • Including scenario analysis in the forecasting model
  • Modeling fixed and variable costs
  • Adjusting the debt's structure to provide for flexibility in response to various cash flow scenarios

Leverage and group structure analysis

  • Leverage's benefits and drawbacks
  • Equity vs. debt and quasi-debt: benefits and drawbacks
  • Adaptability to Leverage
  • Leverage factors
  • Impact of shareholder value factors on credit quality
  • weighing the credit profile against shareholder and ROE concerns
  • both complicated and straightforward group structures
  • Do the owners make the company stronger or weaker?
  • double leverage
  • structural and contractual subordination
  • Effects of structural problems on ratings

Unit 4: Credit ratings

  • various business rating systems
  • How to determine company ratings
  • Creating the sector rating
  • Evaluating the rm's standing in the sector
  • Monetary ratios
  • The sovereign ceiling and sovereign ratings
  • Notching for criteria such as credit improvement, structural and contractual subordination, and others

Unit 5: Overview of leveraged buyouts

  • Reasons for LBOs
  • Who qualifies as a strong LBO candidate?
  • Current LBO market trends
  • Purchase several
  • proportion of debt and equity financing structures
  • Common covenants
  • Important funding sources for LBOs
  • Leveraged loans, HY bonds, and single-tranche finance
  • How the LL and HY bond markets have recently converged
  • Important sources of various forms of equity and quasi-equity
  • Using intermediary HCs and acquisition vehicles to structure an LBO
  • Setting the debt ceiling
  • debt to cash flows and asset base matching
  • The LBO being set up in an Excel spreadsheet
  • Sources of funding and its uses
  • Creating a pro forma balance sheet that models the new capital structure
  • The three projections make statements
  • calculating the important ratios
  • Modeling for fresh stock investments and dividend reinvestments
  • constructing the loan with flexibility for various cash flow outcomes
  • Modeling new loan characteristics, including shareholder loans, equity kickers, amortizations, and PIK
  • Controlling the exit: trade sales, dividend recaptures, IPOs, and sales to other funds
  • examining a detailed LBO model and using scenario analysis
  • Calculating IRRs, MIRRs, and money multipliers to evaluate returns to equity and subordinated lenders
  • An efficient way to model and analyze an LBO without creating a full model

Credit documentation – focus on covenants

  • The clause of construction
  • What is the goal of the loan and how does it connect to the sources of repayment?
  • Covenants' objectives
  • What is a loose covenant?
  • Describe covenant-lite.
  • Covenants in the bond and syndicated loan markets have recently changed.
  • subsidiary that are restricted versus unrestricted
  • Covenants, both financial and otherwise
  • The value of definitions
  • Carve-outs, testing, and baskets
  • Value preservation agreements
  • Leverage and maximum levels of debt
  • Covering interest
  • Discretionary dividends
  • Spending restrictions on investments
  • M&A and disposal restrictions
  • Limits on sale and leaseback transactions
  • Ownership or control shift
  • Grace intervals
  • Freebie trays
  • Mulligan provisions
  • Carve-outs
  • How borrowers have taken advantage of carve-outs to hurt current lenders
  • Security

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