Corporate Credit Analysis notes

CORPORATE CREDIT ANALYSIS

UNIT DESCRIPTION

The paper is intended to equip the candidate with the knowledge, skills and attitude that will enable him or her to make effective corporate lending decisions. 

LEARNING OUTCOMES

A candidate who passes this paper should be able to:

• Undertake credit analysis for dynamic corporates
• Appraise risk tendencies of an entity’s management team and their influence on financial and operating decisions affecting creditworthiness
• Assess credit risk of debt instruments
• Examine the impact of debt instruments and debt structures on firm’s recovery prospects in case of insolvency.
• Evaluate the shaping of a corporation’s business action of a sovereign government.

 

CONTENT

1. Overview of Credit Analysis

1.1       Lending philosophy

1.2       Identifying credit opportunity

1.3       Stages of analysis to a credit proposition

1.4       The credit decision

1.5       Credit monitoring

 

2. Overview of Corporate Borrowers

2.1       Types of corporates and their key features

2.2       Considerations in lending to corporates

2.3       Credit Risks associated with various corporates

2.4       Considerations in lending to groups of companies/conglomerates

 

3. Corporate Strategy and Credit risk

3.1       Analysis of Credit Risks inherent in a corporate’s:

3.1.1    Business strategy

3.1.2    Business model

3.1.3    Financial strategy

3.1.4    Marketing strategy

 

4. Structuring Credit Products

4.1       Objectives and process of facilities structuring

4.2       Loan agreements and covenants

4.3       Covenant clauses in lending

4.4       Facility pricing and structuring

4.5       Loans amortisation

 

5. The Management Factor

5.1       Managerial behavior and corporate’s credit profile

5.2       Competences of key management positions

5.3       Assessment of corporate governance

5.4       Influence of management actions on corporate performance

 

6. Corporate Financial Risk Analysis

6.1       Importance of financial policies in Credit analysis

• Firm’s risk tolerance
• Credit measures relative to financial reports

6.4Forecasting and sensitivity analysis of corporate cash flow drivers.

 

7  Credit Risk on debt instruments

7.1       Types of debts instruments

7.2       Debts instruments pricing

7.3       Insolvency regimes and debt structures

• Estimating recovery prospects on debt instruments

 

8Industry Credit Risks

8.1       Credit profiles of various industries and sectors

8.2       Industry lifecycle stages

8.3       Patterns of business cycles and seasonality

• Limitation of a corporate’s credit quality specific industry risk

 

9 Analysis of Sovereign and Country risks

9.1       Impact of countries’ rules and regulations business activity and credit risk

9.2       Influence of political, legal and financial systems on corporates’ credit risk profiles

• Shaping of credit risk a country’s infrastructure and natural endowments

9.4      Country macroeconomic policies and corporate credit risk

 

10Credit monitoring and control

10.1     Managing loan portfolio

10.2     Identification of warning signs of bad and doubtful debts

10.3     Early symptoms of financial distress

10.4     Dealing with problem accounts

10.5     Causes of credit deterioration and its control

10.6     Corporate remedial action-Recovery and restructuring

10.7     Loan workouts