Advanced Credit Analysis

Course Background 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 markets, knowing how to analyse and minimize credit risk remains key to avoiding losses, maximising returns and limiting capital usage. This course introduces more advanced analytical and structuring techniques for assessing, limiting and offsetting credit risks. This course does not extend to the analysis of banks, insurance companies or structured vehicles. Methodology The course combines formal theoretical instruction 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. Delegates are expected to know how to use Excel. 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. The lecturer will be available throughout the duration of the course to offer additional help if required. A five day training course with extensive case studies covering: Advanced financial analysis, including calculating key credit ratios Advanced financial modelling in Excel Assessing refinancing risk Credit enhancement methods; securitization, security, netting, SPVs etc Creating cashflow ring-fencing structures Credit linked notes Parent and subsidiary rating linkage Sovereign risk – importance to corporates; key market and rating criteria Sovereign debt – composite issuance, guaranteed and partially-guaranteed debt Company valuation for acquisition finance and distressed situations Deteriorating credits, potential and actual NPLs: warning signs and strategies for minimizing loss 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 Advanced financial analysis, including calculating key credit ratios Adjusting for exceptionals, non-core, derivatives Key accounting factors – revenue recognition, expense allocation, derivatives Calculating net debt – adjusting for quasi debt, cash collateral Adjusting for off-balance sheet items and entities Focus on operating cashflow not earnings Case studies of high yield and complex high grade accounts Advanced financial modelling in Excel Modelling amend and extend facilities Modelling for a new capital structure eg following new shareholder value policies, acquisitions, leveraged buyouts, deleveraging Day 2 Continued - Advanced financial modelling in Excel Modelling new loan features eg PIK toggles, amortizations, cash sweep, equity kickers Assessing refinancing risk Impact of Basel III and bank funding constraints The CLO markets Other factors increasing refinancing risk The importance of forecasting the credit profile at loan maturity Day 3 Credit enhancement methods Securitization Typical structure and participants Creating cashflow ring-fencing measures Rating considerations Security Netting Credit linked notes Case study of a recent major ring-fencing mechanism to give lenders additional protection Parent and subsidiary rating linkage Credit assessment of: - Non-recourse projects eg associates and joint-ventures - Non-guaranteed subsidiaries - Captive finance subsidiaries - Fitch criteria for associates, j/vs, subsidiaries - S&P criteria for associates, j/vs, subsidiaries, captive finance subs Sovereign risk – importance to corporates; key market and rating criteria Case studies covering the current most risky sovereign situations and the impact of recent ECB inititatives Sovereign debt Sovereign composite issuance Sovereign guaranteed debt Sovereign partially-guaranteed debt Day 4 Company valuation for acquisition finance and distressed situations Including PE ratios, EBITDA multiples and DCF Case studies to practice equity valuation and to cover the importance of equity valuations to lenders Deteriorating credits, potential and actual NPLs: warning signs and strategies for minimizing loss Case studies of distressed credits that survived and that went bankrupt Day 5 Introduction to the legal structure key debt products: Key contractual provisions in credit protection: - Loans and bonds - Why is the documentation different? - Where do the products overlap? The concepts behind subordination and intercreditor arrangements: - Controlling cash flows - Rights of enforcement and recovery - What is pari passu and does it matter? The impact of the search for liquidity on debt structures Key contractual provisions in credit protection: Getting the credit risk right in the documentation? Equality amongst investors? - Secured vs unsecured lenders - Is your initial credit position protected against new investors Protecting against value leakage: - Financial covenants - Operational covenants - Events of default What to look out for when considering amendments and waivers Introduction to guarantees The impact of the financial crisis on loan documentation: Defaulting lenders The new approach to revolving credit facilities Letters of credits Voting Intercreditor issues Course summary and close