Corporate Credit Analysis

Programme description & objectives

Programme description & objectives The overall goal of this five-day Program is to enhance existing analytic skills, using a structured and systematic approach to evaluate the credit standing of a company and the relative attractiveness of the risk-return profile of the investing / lending proposition. Participants are encouraged to be focused, practical and concise in developing and articulating credit judgement. 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 qualitative and quantitative frameworks and tools (e.g. ratios and cash-flow measures) - 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 - Identify the key factors that drive a company’s future performance and evaluate the likely impact on its credit standing - Use a cash-flow approach to ascertain a firm’s ability to service/refinance its debt as it comes due. - Review debt structures to assess to what extent they meet the commercial needs of the borrower and protect the lender’s interests.

Venues, Dates & Cost

Venues	Dublin	London	Dubai	Edmonton (CAN)	Lagos/Abuja
Dates	TBD	TBD	TBD	TBD	TBD
Cost	$3,900 per participant (USD)				(=N=)

For Whom

Corporate bankers and analysts
Corporate risk underwriters
Other finance professionals working in credit risk management and credit products areas, including relationship management and debt origination.
NB: Participants should have a firm grasp of accounting and be familiar with basic credit concepts before attending this Program. The program is designed as a preparation for those with limited accounting and banking experience.

Snapshot of Course Content

Analytic Overview

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 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
Exercise: identifying the true purpose of borrowing, the source(s) of repayment, the risk to the main sources of repayment and the expected structure of the debt, using several corporate borrowers (e.g. retailer, office equipment manufacturer).

Market Indicators of Credit Risk

Credit Ratings: rating trend and outlook
Debt market: bond spreads vs. rating curves and CDS pricing
Equity signals: share price movements and key multiples.

Risks to Repayment

Macro considerations
Operating environment
Fundamental macro economic variables, influence of social issues, government intervention and regulation, political and sovereign risk issues.
Sector structure, competitive forces and effect of industry growth drivers on company performance
Key sector drivers influencing cash-flow profiles for all operators in the industry: sales growth, operating profit margins, working capital requirements and capital expenditure
Critical success factors needed to be addressed in order to sustain a competitive advantage in the future
Exercise in statement logic: asset configurations, funding structures and earnings of companies in different sectors.

Management and Shareholders

Evaluating and measuring management’s performance
Corporate aims and goals: their effect on the company’s future
Evaluating the shareholder structure, support and influence.

Business Risk

Business strategy
A company’s markets, products, services and competitive position as well as corporate actions underpinning its growth strategy.
Earnings dynamics
Strategic direction of the firm: sales and operating profitability, sources of operating cash-flow, trend and peer analysis
Quality and stability of the income stream and the cost base of the firm
Quantifying performance looking beyond EBITDA: defining, calculating and using operating cash-flow to analyze profitability. Key ratios and cash-flow benchmarks
Ability to sustain profitability and cash-flow through economic cycles using peer analysis to bench-mark performance
Different accounting conventions: looking beyond the numbers and uncovering misleading accounting practices
Exercise: analysis of earning dynamics in specific company situations (e.g. high volume -low margin business model or high FX and commodity exposures)

Asset Management

Using the asset conversion cycle to create expectations about balance sheet and asset efficiency
Quantifying performance: general and industry specific ratio and cash-flow tools to analyze and benchmark asset efficiency
Exercise: identify 2 or 3 companies operating in the same industry (e.g. brewing, airlines or retail) but with different business models using key asset management ratios.

Forecasting and Sensitising Key Cash-Flow Drivers

Assessing forecasts of operating performance and asset investment requirements: checking for reasonableness and consistency.

Financial Risk

Financial strategy
Using business risk to gauge an appropriate level of financial risk
Access to alternative sources of funding: trade, bank debt, capital markets, structured finance, equity etc.
Corporate treasury objectives: external rating maintenance, tenor matching, funding and liquidity and refinancing needs.

Liquidity

Determining financial flexibility: measuring liquidity: ratio and cash-flow tools
Funding instruments used by companies that can increase the financial risk: e.g. Tenor and currency mismatch and concentration of refinancing risk in certain years
Exercise: assessment of payment readiness for companies in a variety of sectors (e.g. textiles manufacturing, food retail, tour operator).

Solvency

Solvency or degree of financial risk, taking into account on and off balance sheet obligations
Debt servicing ability using cash-flow analysis
Exercises: Assessment of degree of financial risk and debt servicing ability using several companies’ cash-flow information and brief company descriptions. Companies are chosen depending on region and sectors, e.g. car and aircraft manufacturers, beverage producers, steel manufacturing, chemical producers, pharmaceutical wholesalers, retailers, oil E&P, oil refinery and distribution, mining
Rating medians to benchmark a company’s financial standing
Future cash available for debt service using a simple debt capacity cash-flow model
Quantifying refinancing risk: debt capacity vs. borrowing capacity.

Structure

Debt profile: matching debt profiles and amortisation to repayment sources
Ranking: different ways to achieve seniority or pari passu ranking vs. other capital providers
Safeguards: the use of financial and non-financial covenants to mitigate risk
Credit pricing: understanding investor’s hurdle rates: compensating for expected and unexpected loss.
Illustration case studies