Course dates
Course overview
During the financial crisis, many banks and other financial institutions lost billions of dollars due to their failure to analyse credit risks correctly. Even when financial institutions do not suffer direct financial losses due to default or market movements, they may be receiving an inadequate return for the risks involved.
With leveraged instruments set to remain a standard part of corporate capital structures, in both the private and public equity markets, knowing how to analyse credit risk remains key to avoiding losses and to maximising returns.
The aim of 'Credit Analysis and Financial Modelling' is to teach delegates how to model and analyse corporate credit risk, how to assess structural and documentation risk and to give an overview of dealing with NPLs. This course does not extend to the analysis of banks, insurance companies or structured vehicles.
Summary of course content
- Bank loan and bond markets
- Credit ratings and the rating agencies
- Financial analysis, including calculating key credit ratios such as
debt service coverage
- Financial modelling in Excel, including Leveraged Buyouts (LBOs)
- Qualitative risk analysis: sovereign, industry and companyspecific
- Quantitative risk analysis
- Impact of corporate finance activity on credit quality
- Documentation, including the 8 key non-financial covenants
- Default predictors and dealing with problem credits
Methodology
The course combines theory with frequent use of exercises and case studies. These are based on real
situations and are designed to help delegates implement new practices and to learn from empirical experience. The course is practical and inter-active, with delegates encouraged to ask questions. The
techniques taught are intended to be of immediate practical use in the workplace.
Computer-based exercises
All delegates should bring their laptops to facilitate in-class studies and exercises and should have a
basic level understanding of Excel.
Who should attend this training course?
- Bank credit officers
- Investment bankers
- Management consultants
- Bond credit analysts
- Fixed income/credit traders
- Fixed income/credit sales people
- Fund managers
- Treasurers
- Compliance officers
- Financial decision makers in corporations
Supporting publications
DAY ONE
Types of lending and credit ratings
- The lending markets
- Bank lending and CDS
- The bond markets - high grade and high yield
- Credit ratings
- Rating scales and definitions
- Recovery ratings
- Relevance of sovereign ratings
Financial aspects of credit analysis (quantitative factors)
Analysis of historic results
- The profit and loss account; adjusting for exceptionals
- The cashflow statement; re-organising the cashflow statement
- Earnings vs. cashflow
- The balance sheet; debt maturity profile
DAY TWO
Analysis of historic results (continued)
- Off balance sheet liabilities
- Adjustments for operating leases
- The importance of forecasting and of cashflow vs. assets
- Ratios for credit analysis (leverage, liquidity, earnings and cash coverage, asset coverage, working
capital, asset turnover)
- Payback/debt servicing analysis
Case study: analysis of a listed retailer and listed property company
- Assessing debt capacity for corporates
- Accounting factors for credit analysis
DAY THREE
Modelling and forecasting in Excel
- Creation of full financial forecasting models - simple and more complex
- Creation of assumptions
- Return analysis
- Creation of covenant package
- LBO model
Case studies: modelling with Excel of historic accounts, creation of forecasts, sensitivity analysis within one Excel file, calculation and analysis of ratios, creation of covenants. Creating a refinancing package for a cyclical company.
Business risk analysis (qualitative factors)
- Sovereign
- Economy, currency, credit rating, political risks
- Industry
- Porter's five forces
- Industry life cycle (growth)
- Industry cyclicality (earnings quality)
- Leading indicators
- Competition
- Pricing dynamics; demand vs. supply
- Changing business environments
- Regulation
- Capital intensity and cost base
Case study: review credit of company in changing industry environment
- Company specific
- Management
- Operating, capital and corporate finance strategies
- Competitive advantages and cost position
- Product/service offering, differentiation and pricing power
- Diversification
- Customer/supplier concentration
- Structural factors
- Shareholder structure
- Ownership and support
- Structural and contractual subordination
- Impact of structural issues on ratings
DAY FOUR
Leverage analysis
- The advantages and disadvantages of leverage: debt vs. equity
- Suitability for leverage
- Determinants of leverage
- Impact of shareholder value considerations on credit quality
- Corporate structure and double leverage
Case study: evolution of BAA’s risk and financial profile and structure of borrowing
Risk limitation techniques, covenants, documentation, distressed credit situations
- Purpose and structure of debt facilities
- Documentation
- Overview of a loan agreement
- Overview of high grade and high yield bond prospectuses
- Reps and warranties, conditions precedent, negative pledge MAC clauses, events of default, crossdefault, equity cures etc.
- Focus on covenants - financial and non-financial covenants
- Covenant definitions (financial), including offbalance sheet liabilities
- Covenant definitions (non-financial) - what makes for stronger or weaker covenants
- The 8 key covenants for event and recapitalisation risks
Pricing for bonds
Pricing for loans
DAY FIVE
Impact of corporate finance transactions on credit quality; leveraged buyouts
- Corporate finance transactions
- Mergers, acquisitions, disposals, break-ups, demergers, LBOs, etc
Case studies: impact of M&A on credit quality
- Leveraged buyouts
- Rationale to LBOs
- Structuring an LBO
- Quick method of assessing LBO returns
- Assessing returns to equity and subordinated lenders
- Modelling an LBO
Distressed credits
- Identifying the problems
- Signs of business deterioration
- Developing a revised business plan - does the firm have a future?
- Assessing recovery rates
- Assessing the options: liquidation or administration/restructuring
- Debt restructuring options
- Renegotiation of terms: PIK, higher interest, extended maturities, additional security, warrants,
etc
- Equity injection
- Debt forgiveness
- Debt for equity swap/warrants
- Debt for debt swap
- Discounted debt buybacks
- Sale of entire company
Hilton Hotel Singapore, Singapore, Singapore
This programme takes place on a non-residential basis at Hilton Hotel Singapore. Non-residential course fees include training facilities, documentation, lunches and refreshments for the duration of the programme. Delegates are responsible for arranging their own accommodation, however, a list of convenient hotels (many at specially negotiated rates) is available upon registration.
InterContinental Grand Stanford Hotel, Hong Kong, Hong Kong
This programme takes place on a non-residential basis at the InterContinental Grand Stanford Hotel. Non-residential course fees include training facilities, documentation, lunches and refreshments for the duration of the programme. Delegates are responsible for arranging their own accommodation, however, a list of convenient hotels (many at specially negotiated rates) is available upon registration.
-
Sarah Martin
Sarah Martin has spent seventeen years working as an investment banker in Europe and the US. She has principally worked in the credit markets and has experience of the US and European high grade and high yield markets, the European new issue markets, the Asian convertible bond markets, of corporate restructurings of distressed credits and was the lead analyst on the largest LBO in Europe in 2000 (Tecnost/Telecom Italia). She also has extensive experience of corporate finance transactions, including mergers, disposals, privatisations, IPOs and capital raisings. She was latterly an Executive Director at Lehman Brothers in Fixed Income Research in London, having also worked for CS First Boston and Kleinwort Benson. She now works on an independent basis advising the legal profession and companies on credit analysis and company valuation. She has a degree in economics from the London School of Economics and stock exchange qualifications from London and New York.
Courses run by this instructor
Interested in holding this course in-house? Please fill out your details and a member of our team will be in touch with more information.
Course dates