Corporate Credit Analysis & Financial Modelling
Corporate Credit Analysis & Financial Modelling
Starting dates and places
Description
Course background Through every business cycle, banks and other
financial institutions lose billions of dollars as a result of
their failure to analyse credit risk correctly. Even if these
institutions do not suffer direct financial losses due to default /
market movements, they may be receiving an inadequate return for
the risks involved. Given the increasing use of leverage by both
the private and public equity markets, these issues are becoming
even more relevant than before. The aim of this course is to teach
delegates how to analyse corporate credit risk and how to assess an
appropriate return. This course does not extend to the analysis of
banks, insurance companies or structured vehic…Frequently asked questions
There are no frequently asked questions yet. If you have any more questions or need help, contact our customer service.
Course background Through every business cycle, banks and other
financial institutions lose billions of dollars as a result of
their failure to analyse credit risk correctly. Even if these
institutions do not suffer direct financial losses due to default /
market movements, they may be receiving an inadequate return for
the risks involved. Given the increasing use of leverage by both
the private and public equity markets, these issues are becoming
even more relevant than before. The aim of this course is to teach
delegates how to analyse corporate credit risk and how to assess an
appropriate return. This course does not extend to the analysis of
banks, insurance companies or structured vehicles. How will this
course assist you? Through case study analysis you will learn to
thoroughly analyse any credit to allow you to make sound business
decisions. Over the 5 days you will have a better understanding of
the following: Overview of the bank loan and bond markets Credit
ratings & the rating agencies Qualitative risk analysis:
sovereign, industry & company-specific Quantitative risk
analysis Impact of corporate finance activity on credit quality
Financial modeling in Excel, including LBOs How to apply
sensitivity analysis Documentation: high grade & high yield
prospectuses, loan document Default predictors & recovery rates
Structural & contractual subordination Who Should Attend? 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
Day 1 Registration commences at 8:45 Programme runs from 9:00 - 5:00 daily Types of lending and credit ratings The lending markets Bank lending The bond markets - high grade and high yield Credit default swaps Credit ratings Rating scales and definitions Recovery ratings Relevance of sovereign ratings Advantages & limitations of the rating agencies Assessment of financial risks (quantitative factors) Review of historic results Analysing the P&L account Understanding the sources and sustainability of revenues & earnings Understanding the nature of the cost base What constitutes interest charges; including derivatives and quasi-debt Adjusting for exceptionals, non-core earnings, discontinued items The cashflow statement: operations, WC, investment & financing Re-organising the cashflow statement to show CADR Payback and debt service analysis Sources of debt repayment Operating earnings vs. operating cashflow Cashflow based lending vs asset based lending Ratio analysis: margins, interest, dividend & investment cover Day 2 Review of historic results (continued) The balance sheet & consolidation policies The asset base What constitutes debt – derivatives & quasi-debt Off balance sheet liabilities Adjusting for receivables, operating leases, contingent liabilities etc Liquidity analysis Minorities, joint ventures & equity accounting Ratios analysis (leverage, liquidity, asset coverage, working capital, ROIC, ROE, asset turnover) Case study: analysis of a retailer & property company Assessing debt capacity: balancing growth with asset turnover & financial policy Accounting factors; how results can be manipulated Day 3 Modelling and forecasting in Excel Creation of full financial forecasting models Creation of assumptions Return analysis Creation of covenant package LBO model Sensitivity analysis Case studies: modelling with Excel of historic accounts, creation of forecasts, 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 4 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, cross-default, equity cures etc Focus on covenants - financial and non-financial covenants – Covenant definitions (financial), including off-balance 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 and loans Day 5 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 modeling an LBO Assessing returns to equity and subordinated lenders 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
Day 1 Registration commences at 8:45 Programme runs from 9:00 - 5:00 daily Types of lending and credit ratings The lending markets Bank lending The bond markets - high grade and high yield Credit default swaps Credit ratings Rating scales and definitions Recovery ratings Relevance of sovereign ratings Advantages & limitations of the rating agencies Assessment of financial risks (quantitative factors) Review of historic results Analysing the P&L account Understanding the sources and sustainability of revenues & earnings Understanding the nature of the cost base What constitutes interest charges; including derivatives and quasi-debt Adjusting for exceptionals, non-core earnings, discontinued items The cashflow statement: operations, WC, investment & financing Re-organising the cashflow statement to show CADR Payback and debt service analysis Sources of debt repayment Operating earnings vs. operating cashflow Cashflow based lending vs asset based lending Ratio analysis: margins, interest, dividend & investment cover Day 2 Review of historic results (continued) The balance sheet & consolidation policies The asset base What constitutes debt – derivatives & quasi-debt Off balance sheet liabilities Adjusting for receivables, operating leases, contingent liabilities etc Liquidity analysis Minorities, joint ventures & equity accounting Ratios analysis (leverage, liquidity, asset coverage, working capital, ROIC, ROE, asset turnover) Case study: analysis of a retailer & property company Assessing debt capacity: balancing growth with asset turnover & financial policy Accounting factors; how results can be manipulated Day 3 Modelling and forecasting in Excel Creation of full financial forecasting models Creation of assumptions Return analysis Creation of covenant package LBO model Sensitivity analysis Case studies: modelling with Excel of historic accounts, creation of forecasts, 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 4 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, cross-default, equity cures etc Focus on covenants - financial and non-financial covenants – Covenant definitions (financial), including off-balance 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 and loans Day 5 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 modeling an LBO Assessing returns to equity and subordinated lenders 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
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