London School of Credit Analysis

The global credit crisis has left many small, medium and even multinational companies faced with internal financial crisis as they try and sure-up the value of their assets, release liquidity as banks reduce their cash lines and look to the future by starving off further decline by assessing real growth areas. However an increasing number of borrowers are failing to meet their loan obligations. Bankers lending to such troubled borrowers are often faced with a dilemma: enforcing liquidation which can provide certainty of a short term return but which can involve a significant loss of principal, or giving the borrower more time which adds yet more uncertainty to a risky recovery process. In tough liquidity conditions, such as today's global credit crunch, credit professionals are required to quickly identify what is causing borrowers problems and provide the most appropriate and cost effective financing solution. Such solutions can be unique to the sector in which the company operates and specialist knowledge may be required regarding leverage buyouts, corporate loan workouts and particularly immediate organisational financial restructuring. Access to credit and knowledge of how to implement relevant 'credit' strategies will be the key determining factor as to which companies survive this crisis. How will this course assist you? Over an intensive five days you will cover: An overview of credit issues including regulations, rating agencies, cashflow, debt issues, corporate loan workouts and financial restructuring Analyse credit risk to avoid losses Address early warning signals and identify the causes of the borrower's problems Use financial modelling with Excel for forecasting and credit analysis Evaluate the various loan workout and restructuring options Develop repayment programmes tailored to the borrower's operating cashflow Identify which borrowers can be returned to viability, as opposed to those for whom a quick liquidation is the most realistic course Who Should Attend? Bankers in Loan Workout and Debt Management Heads of Credit Credit Risk Officers Credit AnalystsRisk Managers Senior Financial Analysts Senior Lending OfficersLawyers
Day 1 Registration commences at 8:30 Programme runs from 9:00 - 5:00 daily Understanding the influencing factors Overview of the bank and bond markets Bank facilities – types of lending High grade markets High yield markets Factors influencing pricing Liability management; fixed vs. floating, maturity, duration, currency, bank vs. bonds The role and relevance of the rating agencies Background to the rating agencies verview of rating scales and definitions Investment grade vs. non-investment grade Relevance of sovereign ratings Default probabilities and recovery ratings Limitations of the rating agencies Analysis of historic results Detailed review of P&L account, cashflow statement and balance sheet Earnings vs. cashflow Adjusting the cashflow statement to arrive at CADR Off balance sheet liabilities Dealing with exceptionals and non-core earnings Adjusting for operating leases ROIC vs. WACC Debt maturity profile, liquidity and working capital Ratio analysis Case study: analysis of a listed retailer and listed property company. Accounting factors Accounting standards (IFRS, US GAAP) Accounting tricks to enhance profitability Day 2 Quantitative analysis Financial policy Debt vs. equity Suitability for leverage Assessing debt capacity Impact of shareholder value on credit quality Impact of corporate finance deals on credit quality Mergers, acquisitions, disposals, break-ups, demergers, equity offerings Case studies: impact of M&A on credit quality. Leveraged buyouts Rationale Typical structure Quick method of calculating LBO viability Modelling of the LBO Calculation of returns to different capital providers Creation of covenant package Short cut method of modelling a leveraged buyout Documentation Covenants – financial and Moody’s eight key non-financial covenants Review of an investment grade bond prospectus and of a high yield bond prospectus Review of a bank loan agreement Brief overview of qualitative factors - SWOT analysis - Sovereign - Economy, currency, credit rating, political risks Industry specific case study: review credit of company in changing industry environment. Company specific case study: evaluation of a turnaround situation Structural factors Shareholder structure Ownership and support Structural and contractual subordination Impact of structural issues on ratings Day 3 Company modelling and forecasting Financial modelling Construction of a simple one worksheet model, linking forecast assumptions to the P&L account, cashflow statement and balance sheet Review of a multi-worksheet based model, with separate worksheets for PP&E, minority interests, assets held for sale, associates, shareholders’ equity, debt and cash Calculation of ratios and covenants – Review of conditional functions, tools / scenarios, correcting circularity, cash sweep, max / min etc. Case studies: High / low grade industry Impact of new regulation / government support Impact of a major strategic shift Analysis of a corporate undergoing gradual decline Impact of major technological innovation Off-balance sheet liabilities Impact of changing sovereign factors Analysis of a one-off insolvency situation Analysis of a recurring default situation The impact of results restatements Review of loan agreement Review of a high grade and junk bond prospectus Review of a rating agency covenant quality assessment report Day 4 Corporate debt restructuring Overview of loan workouts and restructuring Lessons from experience: including gypsum wallboard plants; hotels; restaurant chains etc. Initial analysis Use of Liquidation Models to assess each stakeholder’s economic interest and how the pain should be shared Overview of UK restructuring / insolvency priorities to assist with this process Case studies: (I) US leveraged situation, (II) European industrial group. Restructuring the balance sheet of a highly leveraged company Case study: restructure the company’s balance sheet and propose heads of terms. Debrief will include restructuring terms sheets, rationale and outcome. Risk and reward in workout cases Constructive criticism of the returns achieved in B2B case Imposing a RAROC structure on workout pricing Reward techniques including the use of: increased interest rate Part cash pay interest / part PIK Restructuring fees Success fees and how to tie these to company’s ability to pay Warrants Convertible term loans Debt-equity swaps Case study: review the terms of a UK listed company’s workout. Day 5 Distressed debt and alternative options A distressed biodiesel producer: a green facility before its time? Identification of causes of financial distress How can the causes be addressed? What will it take for the facility to become economically viable? Who has the economic interest? Use of debt-equity swaps Nuisance power of shareholders How the takeover was structured What should workout bankers do now? Overview of insolvency regimes and their impacts upon workouts UK formal and informal arrangements Key differences between UK and France / Germany to give a European perspective Case study: a high profile CVA Multi-creditor workouts An overview of the London approach Steering committees Debt moratoria Case study: negotiation / nuisance power of various stakeholders at a large European industrial group and how these influenced the eventual outcome. Hotel in distress: should we take the bidder’s offer or invest and hold? Identification of causes of financial distress Using consultants’ reports What will it take for the hotel to become economically viable? Who has the economic interest? Take the offer or fund investment in the hope of realizing higher value in future? What value can the distressed debt investor achieve? Framework for considering acceptability of such offers Course summary and close