Excellences in corporate credit analysis and Administration

• After completing this course, delegates will learn:
• how to apply a structured approach to corporate credit analysis
• how to undertake detailed financial risk analysis
• how to calculate key credit ratios
• how to undertake financial modelling and forecasting in Excel
• how to apply sensitivity analysis
• how to analyze leverage in detail, including the determinants of leverage
• how to analyze structural factors such as ownership, double leverage, structural subordination and contractual subordination
• about  credit ratings and how they are determined
• how to analyze the impact of corporate finance activity on credit quality
• the importance of qualitative risk analysis: sovereign, industry and company specific
• how to analyze and model leveraged buyouts
• about credit documentation and key covenants

Content:

Background to credit analysis
 

• What is credit analysis?
• How is credit quality and exposure measured?
• Sources of debt service
• Creating a framework for credit analysis

Income statement analysis from a credit perspective
 

• Analyzing and forecasting revenues
• What are the key revenue drivers and what are their trends and risks?
• What are the key cost drivers and what are their trends and risks?
• Fixed and variable costs
• The impact of hedging - currencies, interest rates, commodities
• Calculating underlying earnings and EBITDA
• Dealing with exceptional items, hedging gains/losses, restructuring costs, “one-off items”, gains/losses on disposals etc to work out underlying EBITDA
• Defining finance expense and finance income
• The impact of IFRS 16
• Dealing with equity-accounted entities and NCI
• Taxation issues

Cashflow statement analysis from a credit perspective
 

• The main sources and uses of cashflow
• The level, volatility and predictability of the firm’s cashflow
• Deriving operating cashflow
• including changes in NWC, and dividends from equity accounted entities
• Deriving net operating cashflow – deducting net finance expense and tax paid
• Defining cashflow relating to investment spending, gross and net
• Defining cashflow relating to financing activities
• Does the firm generate sufficient cashflow to service debt and fund capex?
• Are new investments adding value?
• How are cash shortfalls funded?
• Is the firm diverting too much cashflow to shareholders?
• Reorganising the cashflow statement to show CADR

Balance sheet analysis from a credit perspective

 

• Consolidation policies
• The nature of the asset base:
• Financial assets - cash, investments, derivative assets, cash pledges, restricted cash,
• How are the assets valued? What is the outlook for impairments or revaluations?
• The security value of assets
• Calculating an expanded definition of gross and net debt
• Liquidity analysis
• Modelling and forecasting in Excel
• Overview of good spreadsheet practices
• Creation of a full financial forecasting model
• Assumptions, income statement, balance sheet and cashflow statement
• Modelling fixed and variable costs
• Structuring the debt to include flexibility for different cashflow outcomes
• Waterfall debt repayment schedule
• Debt repayment and roll-over strategy

Qualitative credit analysis
 

• The impact of sovereign and macro factors on credit risk
• Sovereign defaults and rating outlooks
• Macro-economic outlook
• Which sectors are currently impacted the most by Covid-19; ESG; disruption?
• What are the key business risks faced by the firm and are there any mitigating factors?
• Case study: establishing the main risks and mitigating factors to a chosen group
   

Credit ratings
 

• Different types of corporate rating
• How corporate ratings are determined
• Establishing the industry rating
• Assessing the firm's position within the industry
• Financial ratios
• Sovereign ratings and the sovereign ceiling
• Notching for structural and contractual subordination, credit enhancement and other factors

The impact of corporate finance transactions on credit quality
 

• Mergers and acquisitions
• Disposals
• Break-ups
• Demergers
• IPOs of subsidiaries
• Is the impact positive, negative or neutral to the firm’s credit?
   

Credit documentation – focus on covenants
 

• The construction clause
• What is the purpose of the loan and is it related to the repayment sources?
• Aims of covenants
• What is covenant loose?
• What is covenant-lite?
• Recent trends in covenants in the bond and syndicated loan markets
• Restricted versus non-restricted subsidiaries
• Financial and non-financial covenants

TRAINING METHODOLOGY

The training methodology combines lectures, discussions, group exercises and illustrations. Participants will gain both theoretical and practical knowledge of the topics. The emphasis is on the practical application of the topics and as a result participant will go back to the workplace with both the ability and the confidence to apply the techniques learned to their duties.