Corporate Credit Analysis & Financial Modelling

A 5-day training course with extensive case studies covering: Bank loan and bond markets Credit ratings and the rating agencies Financial analysis, including calculating key credit ratios such as debt service coverage Financial modelling in Excel, including Leveraged Buyouts (LBOs) Qualitative risk analysis: sovereign, industry and company-specific Quantitative risk analysis Impact of corporate finance activity on credit quality Documentation, including the eight key non-financial covenants Default predictors and dealing with problem credits Who Should Attend? The course will be of value to professionals in the following areas: 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 Course Objectives The aim of the course is to provide delegates with an understanding of the following: Overview of the bank loan and bond markets Credit ratings and the rating agencies Qualitative risk analysis: sovereign, industry and 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 and high yield prospectuses, loan document Default predictors and recovery rates Structural and contractual subordination Methodology The teaching methodology used on this 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. The course is intended to be practical and interactive, with delegates encouraged to ask questions. The techniques taught to delegates 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.
Day 1 Types of lending and credit ratings The lending markets Bank lending The bond markets - high grade and high yield Credit ratings Rating scales and definitions Recovery ratings Relevance of sovereign ratings Financial aspects of credit analysis (quantitative factors) Analysis of historic results The profit and loss account; adjusting for exceptionals The cashflow statement; re-organising the cashflow statement Earnings vs. cashflow The balance sheet; debt maturity profile Day 2 Analysis of historic results (continued) Off balance sheet liabilities Adjustments for operating leases The importance of forecasting and of cashflow vs. assets Ratios for credit analysis (leverage, liquidity, earnings and cash coverage, asset coverage, working capital, asset turnover) Payback/debt servicing analysis Case study: analysis of a listed retailer and listed property company Assessing debt capacity Accounting factors Day 3 Modelling and forecasting in Excel Creation of full financial forecasting models - simple and more complex Creation of assumptions Return analysis Creation of covenant package LBO model Case studies: modelling with Excel of historic accounts, creation of forecasts, sensitivity analysis within one Excel file, 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 Pricing for 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 assessing LBO returns Assessing returns to equity and subordinated lenders Modelling an LBO 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 Course summary and close