Credit Analysis Masterclass (Modular Course)

Course overview During the financial crisis, many banks and other financial institutions lost billions of dollars due to their failure of 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 equity markets, knowing how to analyse credit risk remains key to avoiding losses and to maximising returns. 'Credit Analysis Masterclass - Module 1: Credit Analysis and Financial Modelling & Module 2: Advanced Credit Analysis' will teach you how to model and analyse corporate credit risk, how to assess structural and documentation risk and to give an overview of dealing with NPLs. This masterclass does not extend to the analysis of banks, insurance companies or structured vehicles. Module 1: Credit Analysis and Financial Modelling 17-21 November 2014, Hong Kong Summary of course content Bank loan and bond markets Credit ratings and the rating agencies Quantitative risk analysis 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 Impact of corporate finance activity on credit quality Documentation, including the 8 key non-financial covenants Default predictors and dealing with problem credits Module 2: Advanced Credit Analysis 24-27 November 2014, Hong Kong Summary of course content Advanced financial analysis, including calculating key credit ratios for complex credit Advanced financial modelling in Excel® Assessing refinancing risk Credit enhancement methods; securitisation, security, netting, SPVs etc Creating cashflow ring-fencing structures Credit linked notes Parent and subsidiary rating linkage Sovereign risk techniques Sovereign debt techniques Corporate valuation for acquisition finance and distressed situations Deteriorating credits, potential and actual NPLs: warning signs and strategies for minimising losses Methodology The masterclass combines theory with frequent use of exercises and case studies. These are based on real situations and are designed to help you implement new practices and to learn from empirical experience. This masterclass is practical and interactive, encouraging you to ask questions. The techniques taught are intended to be of immediate practical use in the workplace. Computer-based exercises All delegates should bring their laptops to facilitate in-class studies and exercises and should have a basic level understanding of Excel. Who should attend this training course? Bank Credit Officers Investment Bankers Bond Credit Analysts Fixed Income/Credit Traders Fixed Income/Credit Sales Personnel Fund Managers Treasurers Compliance Officers Management Consultants Financial decision makers in corporations Save US$1,350 when registering both modules on 17-27 November 2014! Module 1: Credit Analysis and Financial Modelling 17-21 November 2014, Hong Kong Module 2: Advanced Credit Analysis 24-27 November 2014, Hong Kong FTS Eligible This programme is approved for listing on the Financial Training Scheme (FTS) Programme Directory and is eligible for FTS claims subject to all eligibility criteria being met. Please note that in no way does this represent an endorsement of the quality of the training provider and programme. Participants are advised to assess the suitability of the programme and its relevance to participants’ business activities or job roles. The FTS is available to eligible entities, at a 50% funding level of programme fees subject to all eligibility criteria being met. FTS claims may only be made for programmes listed on the FTS Programme Directory with the specified validity period. Please refer to www.ibf.org.sg for more information.
Credit Analysis Masterclass Module 1: Credit Analysis and Financial Modelling Day 1 Types of lending and credit ratings The lending markets Bank lending and CDS 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; liquidity and 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 versus 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 for corporates Accounting factors for credit analysis 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 Sovereign credit ratings Economy, currency and political risk analysis Industry Porter's five forces Industry life cycle (growth) Industry cyclicality (earnings quality) Leading indicators Competition Pricing dynamics; Demand versus 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 Recent trends in pricing Determinants of pricing Influence of sovereign spreads, VIX, etc. 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 Module 2: Advanced Credit Analysis Day 1 Advanced financial analysis, including calculating key credit ratios Adjusting for exceptionals, non-core items, derivatives, etc. 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: High yield and complex high grade accounts Advanced financial modelling in Excel Modelling amend and extend facilities Modelling for a new capital structure, e.g. following new shareholder value policies, acquisitions, leveraged buyouts, deleveraging Day 2 Advanced financial modelling in Excel (continued) Modelling new loan features, e.g. PIK toggles, amortisations, 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 Securitisation Typical structure and participants Creating cashflow ring-fencing measures Rating considerations Security and netting Type of security Offsetting of multiple credit exposures Credit linked notes Case study: Analysis of BAA's major ring-fencing mechanism to give lenders additional protection Parent and subsidiary rating linkage Credit assessment of: Non-recourse projects e.g. 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 initiatives Sovereign debt Sovereign composite issuance Sovereign guaranteed debt Sovereign partially-guaranteed debt Day 4 Corporate 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 minimising loss Case studies: Analysis of distressed credits that recovered and of those that went bankrupt