As a result of this training, delegates will:
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Polish credit skills and develop critical analytical decision making processes
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Have refreshed their existing analytical skills and consolidated their knowledge into a framework and toolkit for credit analysis
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Applied state-of-the-art analytical tools to better understand changes in economic, industry and company conditions
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Determine capital costs and capital structure of a multibusiness
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Learn how the McKinsey restructuring pentagon works
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Improve analysis of credit risk exposures under stochastic stressful conditions
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Value asset, equity swaps and determine the optimal strategy to modify debt terms
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Work with real options to generate a strategic path through the process of framing problem involving risk and investments
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Learn to develop interactive and local corporate and specialised lending risk rating systems
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Analyse workout situations and develop short term/long term turnaround strategies
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Understand Monte Carlo simulation
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Be able to identify the warning signs for businesses in difficulty
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Develop stochastic valuations utilising state-of-the-art valuation software to determine and evaluate value gaps, probability of default, and correlation matrices
Course Methodology
This programme is highly intensive, interactive and encourages participation. Hands on exercises, deal analysis, examples and case studies reinforce concepts and help deliver solutions.
Participants will use laptops during the workshop. Laptops should have recent versions of Microsoft Excel and Real Options Valuation Risk Simulator 5.4.
Trial copies of the simulation software are available free of charge from the Web site: www.realoptionsvaluation.com/download.html.
The trial copy should not be installed too early as trial versions run out after 10 days. Delegates will receive a copy of the author’s book The Banker’s Handbook on Credit Risk. The book includes companion DVD containing 30-day trial versions of Risk Simulator, Real Options SLS, and Basel II Modelling Toolkit software.
Course Outline
This 3-day programme is designed for senior bankers, relationship managers, credit and product specialists and other professionals responsible for identifying and pursuing risk management opportunities and designing financial solutions for clients in a new and evolving credit environment.
This means financial professionals should employ sophisticated credit structures and advanced risk management tools conspicuously absent in days prior to the international banking crisis.
Prerequisites
Pre course work includes selected readings on simulation, real options and optimisation demos. Delegates will, prior to the workshop, prepare an analysis of select cases from the Real Options Valuation website or otherwise transmitted.
Day 1
Review of fundamentals of credit risk management and identifying troubled loans
- The Prism credit model
- Management and administration
- Business operations & bank relationship
- Loan purpose and repayment
- Protecting the loan: setting up a matrix system
Case study: Jen Krist: analysis of a weak credit
Cash flow workshop
- What are sources and uses of cash?
- Developing a bankers cash flow statement
- Reconciliation: how to spot funny money
- Check lists that insure reliability of your cash flow analysis
- Cash flow analysis of projects and joint ventures
- The art of merging cash flow and ratio analysis
Case study: Gem Furniture case: Reconstruction of cash flow and analysis
Financial distress models and methodology
- Workouts at local banks
- Class discussion: regulatory issues managing problem loans in Middle Eastern banks
- Checklist of storm signals
- Financial distress models
- Valuation
- Borrowing base facility
- Auditing techniques
- How to stop the bleeding
- Short term vs. long term workout strategies
Day 2
Standard projections vs. stochastic analysis
- Adjusting critical assumptions and value drivers including economic and industry analysis, operating profit margins, working capital requirements, capital expenditures, cost of capital
- Understanding an obligor’s financial needs
- Introduction to monte carlo computer simulation
- Sensitivity analysis versus stochastic (simulations) projections
- Defining assumptions
- Defining forecasts
- Working with confidence levels
- Determining default frequencies
Exercise: Piece of Cake Company
Using simulation software to compare deterministic and stochastic projections:
Case Study: International Drug Corporation. Delegates determine appropriate (stochastic) distributions, the forecast variable, run simulations, select (frequency chart) confidence levels, call up reports and evaluate project managers’ proposal to the bank.
Harvard Case Study: Savannah West. Delegates work in teams to evaluate simulations, construction project under uncertainty, valuations, investment analysis to arrive at a decision and structure the deal properly.
Using option theory to extract credit information embedded in the equity markets and employing options analysis in assessing default frequencies
- The math behind option theory
- Avoiding value hurting hazards of loan pricing errors
- Factoring volatility estimates into loan pricing
- Volatility & debt/equity values
- Determining the riskless hedge through the N(dl ) component of option pricing
- Finding probabilities that options finish 'in the money' through N(d2) component of the option formula
- Employing options in pricing and valuation decisions
- Quantifying the trade off between risk & pricing
- Determining option pricing assumptions, loan yields associated with the volatility of borrowers' percentage returns
Analysing the obligor’s business, industry and risk profile
- Analysing sector specific drivers
- Industry loan portfolio methodology
- Company operations, key competitors, the impact of economic factors, the pattern of industry growth and earnings
- Identifying and quantifying risk factors in local industries
Portfolio and resource optimisation
- Identify a borrower’s optimal maximum/minimum values subject to constraints
- How to handle nonlinear relationships using stochastic optimisation to analyse financing of corporate restructurings
- Portfolio optimisation and efficient allocation of resources and projects, along with efficient frontiers
- Rolled-up projects: correlated with one another
- Creating an optimal portfolio mix given allocation of investments across multiple projects
Case study: RI Furniture Corporation. Using stochastic optimisation and valuation models to evaluate the credit risk of corporate restructuring
Case study: Rating agency analysis of portfolio credit linked note
Day 3
Valuing the obligor’s business - comparing valuation methods
- Performing a liquidation valuation (assets, collateral and residual value)
- Step-by-step development of a comprehensive corporate appraisal
- Book value method
- Liquidation vs. cash flow value: restructuring decision making
- Last transaction approach
- Valuation multiples approach
- Cash flow valuation
- Advantages and disadvantages of each method
- Stochastic valuation: employing state-of-the-art valuation software
- Assessing success probabilities
Debt and corporate restructuring: alternatives and implications
- Asset swaps
- Equity swaps
- Stock exchanged for debt forgiveness
- Stochastic valuations uses: equity swaps
- Modification of debt terms
- Developing the McKinsey restructuring pentagon
- The restructuring pentagon framework
- Closing value and perception gaps
- Valuing a multibusiness
- Determining capital costs and capital structure of a multibusiness
- Performing business unit valuations
- Spin offs, sell offs, equity carve outs and LBO’s
Case Study: AFCE Enterprises: Computer analysis and valuation of strategic divestitures of major company brands.
How to develop interactive (local environment) industry specific credit rating grids for borrowers/facilities
- The risk grading process
- Risk rating & loan portfolio optimisation
- Ratings grids and loss given default
- Standards & guidelines: Basel II and regulatory issues
- Borrower and transaction risks
- Evaluating and setting up obligor financial measure weights
- Evaluation collateral & guarantees
- Transfer and portfolio risk
- Specialised lending advanced risk rating systems
- Project finance
- Commodity finance
- Object finance
- Income producing real estate
New technology in credit risk management and valuation: introduction to real options analysis
- The what, where, who, when, how, and why of real options analysis
- Identifying, valuing, selecting, and prioritising the right projects
- Gaining additional insights into strategic value and management flexibility in decision making
- Correctly valuing a project's total value, including its strategic intrinsic value
- Eliminating the possibility of undervaluing the strategic value of certain projects
- Identifying and framing future strategic opportunities
- Giving a reliable, repeatable, and consistent process for decision-making
- Providing significant savings over hiring third party consultants
- Analysis of multiple decision pathways as opposed to NPV's single decision pathway
- Incorporating new assumptions over time as opposed to NPV's requirement of all assumptions defined at the outset
- Minimising the possibility of making detrimental decisions
- Incorporating real options into loan analysis
Exercise: Toy Project. Expected net present value Application: Option to expand. Pharmaceutical project; oil and gas company; growth firm Application: Option to abandon. American, European, Bermudan, and customized abandonment options: aircraft manufacturer; pharmaceutical company.
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Morton Glantz
Professor Morton Glantz is an internationally renowned educator, author, and banker. He serves as a financial consultant, educator, and adviser to a broad spectrum of professionals, including corporate financial executives, government ministers, privatisation managers, investment and commercial bankers, public accounting firms, members of merger and acquisition teams, strategic planning executives, management consultants, attorneys, and representatives of foreign governments and international banks. Prof. Glantz is a principal of Real Consulting and Real Options Valuation, firms specialising in risk consulting, training, certification, and advanced analytical software in the areas of risk quantification, analysis, and management solutions.
As a senior officer of JP Morgan Chase, Professor Glantz built a progressive career path specialising in credit analysis and credit risk management, risk grading systems, valuation models, and professional training. He was instrumental in the reorganization and development of the credit analysis module of the Bank’s 3 Management Training Program—Finance, which at the time was recognised as one of the foremost training programs in the banking industry. A partial list of client companies Professor Glantz has worked with includes The Federal Financial Institutions Examination Council, Institutional Investor, The Development Bank of Southern Africa, CUCORP, Canada, East African Development Bank, NBS Bank, Malawi, Access Bank, Nigeria, The Central Bank of Nigeria, The Bank of China, GE Capital, Cyprus Development Bank, Misr Iran Development Bank (Cairo), Gulf Bank (Kuwait), Institute for International Research (Dubai), Inter-American Investment Corporation, Ernst & Young, UAL Merchant Bank ( Johannesburg), Euromoney, ICICI Bank (India), Council for Trade and Economic Cooperation (Russia), BHF Bank, and IBM Credit Corporation.
Morton is on the adjunct finance faculty at the Fordham Graduate School of Business. He has appeared in Harvard University International Directory of Business and Management Scholars and Research and earned Fordham University Deans Award for Faculty Excellence on three occasions. He is a Board Member of the International Standards Board, International Institute of Professional Education and Research (IIPER). The IIPER is a global institute with partners and offices around the world, including the United States, Switzerland, Hong Kong, Mexico, Portugal, Singapore, Nigeria, and Malaysia. Areas of expertise include advanced forecasting methods; advanced credit risk analysis; credit portfolio risk management; essentials of corporate finance; corporate valuation modelling and analysis; credit risk analysis and modelling; project finance and corporate failure.
He received an MBA Finance from New York University; B.B.A., magna cum laude Baruch College, City University of New York. Professor Glantz is widely published in financial journals and has authored seven books published internationally.
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.
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This course has now expired please email us to find out when the course will next be running.