International School of Credit Analysis

International School of Credit Analysis

Euromoney Training
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Description

A 4 day case study based training course covering: Financial analysis, including calculating adjusted key credit ratios Financial modelling and forecasting in Excel to assess debt service coverage Capital structure policy, shareholder value factors, and suitability for leverage Impact of corporate finance activity on credit quality Key documentation issues, including the 8 key nonfinancial covenants Non-performing loans - causes and potential debt restructuring solutions During the recent severe financial crisis, many banks and other financial institutions have lost billions of dollars due to their failure to analyse credit risks correctly. Even when financial institutions do not suffer dire…

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Didn't find what you were looking for? See also: Financial Modelling, Financial Analysis, Corporate Finance, Debt, and Equities.

A 4 day case study based training course covering: Financial analysis, including calculating adjusted key credit ratios Financial modelling and forecasting in Excel to assess debt service coverage Capital structure policy, shareholder value factors, and suitability for leverage Impact of corporate finance activity on credit quality Key documentation issues, including the 8 key nonfinancial covenants Non-performing loans - causes and potential debt restructuring solutions During the recent severe financial crisis, many banks and other financial institutions have 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/market movements, they may be receiving an inadequate return for the risks involved. With leveraged instruments set to remain a key 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 maximizing returns. The aim of this course is to teach delegates 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 course does not extend to the analysis of banks, insurance companies or structured vehicles. Who should attend? Bank credit officers Investment bankers Management consultants Bond credit analysts Fixed income/credit traders Fixed income/credit sales people Equity analysts/investors Fund managers Treasurers Compliance officers Financial decision makers in corporations
Day 1 Ratings, financial policy, results analysis Credit ratings Background to the rating agencies Overview of rating scales and definitions Investment grade vs. non-investment grade Short term and long term ratings Reviews and outlooks Relevance of sovereign ratings Default probabilities and recovery rates Limitations of the rating agencies Financial policy Debt vs. equity Low leverage vs. high leverage Suitability for leverage Assessing debt capacity Impact of shareholder value policies on credit profile Results analysis The profit & loss account; limitations of EBITDA The cashflow statement; focus on operating cashflow Earnings versus cashflow; re-organising the cashflow statement The balance sheet, debt maturity profile Off balance sheet liabilities Adjustments for operating leases Ratio analysis (Leverage, liquidity, earnings & cash coverage, asset coverage, working capital, asset turnover) Ratios vs. peers & the industry Day 2 Modelling in Excel, including LBOs Creation of full financial forecasting model Analysis of historic track record Analysis of trends/ratios Preparation of financial forecasts Creation of assumptions Return analysis Sensitivity analysis vs. a base case Impact of change in capital structure Managing working capital & capex Modelling access to new debt and equity funding Modelling a LBO Modelling reduced funding availability Creation of covenant package Case studies: Modelling with Excel of historic accounts, creation of forecasts, sensitivity analysis, calculation and analysis of ratios, creation of covenants. Creating a refinancing package. Day 3 Impact of corporate finance activity on credit quality; structural factors, guarantees, security, documentation Impact of corporate finance transactions on credit quality Mergers, acquisitions, disposals, break-ups, demergers, LBOs etc Case studies: Impact of M&A on credit quality Organisational and ownership characteristics Structural factors Different types of shareholder structure – impact on credit analysis & documentation Ownership & support Structural subordination & lending to the correct group entity Upstream and downstream guarantees Contractual subordination Impact of structural issues & ownership on ratings Impact of shareholder value policies on credit profile Security considerations Focus on valuing the assets of energy companies – existing asset bases, proven & probable reserves etc Main ways to take security Perfection & enforcement Reconciling the aims of different creditors with those of the borrower Lender hierarchy – payment of interest and principal Lender hierarchy – in the event of restructuring or liquidation Documentation Overview of a loan agreement Overview of high grade & high yield bond prospectuses reps & warranties, conditions precedent, negative pledge (including hedging), MAC clauses, covenants (see below), market disruption, market flex, events of default, crossdefault, consents, waivers, amendments, yank the bank, confidentiality, withholding tax issues, equity cures Security – limits on enforceability & release provisions Reporting & disclosure Subordination and inter-creditor agreements Main standard terms, drag along rights, waterfall of funds, standstill periods, right to participate in restructuring discussions Focus on covenants – financial & 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 & recapitalisation risks Guarantees & letters of comfort Escrow accounts Cashflow ringfencing Day 4 NPLS and debt restructuring Background What is distressed debt? Historic and forecast default rates by country/market/sector Default rates vs. recessions and sovereign crises Recovery rates by country/market/sector Big companies vs. small companies Bilateral loans vs. syndicated loans Why is the company distressed? Sovereign, recession, industry change, poor management, fraud, over-levered etc etc Is the company worth trying to save? Short term problems vs. long term outlook Is the company worth saving? Turnaround plans & potential management changes Pricing, volumes, currency, cost cutting, asset sales, downsizing, working capital, capex Asset write-downs Other liabilities – pensions, provisions, contingencies, deferred tax etc Qualification of accounts Ratings considerations Background to the debt restructuring Lenders’ considerations Does the company need additional funding? Ranking of claims on assets, cashflows & residual firm value Structural subordination issues Preferential claims Political interference Potential options & outcomes Liquidation or administration/restructuring 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 What happens when lenders cannot agree on a solution? Sale of the whole company/forecast firm value DCF` valuations Comparing future value with current claims Forecast residual value vs. short term liquidity constraints Course summary and close
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