Credit Risk Analysis Intensive

Students learn the principal concepts of credit risk analysis techniques using a structured approach and explore the management of credit risks under competitive and realistic conditions.

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Credit and financial analysts, portfolio managers, credit officers, commercial bankers, risk managers and analysts.
No advance preparation required.
Students will be able to:
  • Appreciate the importance of the credit cycle.
  • Have a better understanding of the current state of the credit markets.
  • Discuss the various factors that drive credit quality.
  • Gauge company performance using ratio analysis and complete a trend analysis.
  • Analyze the ratios in context with the business and industry analysis and draw conclusions from the historical data.
  • Understand the rating agency approach and the inherent differences with lender/investor analysis.
  • Recognize the effects of accounting irregularities.
  • Appreciate the analytical benefits and pitfalls of EBITDA.
  • Understand the relationship between qualitative and quantitative aspects of a credit analysis.
  • Compare peer performance.
  • Recognize off-balance sheet risks and quantify them.
Day 1
  • ''What is Credit?''
  • Who uses it and why
  • Review of recent high profile defaults - some common themes
  • Review of credit market
  • Where we are in the credit cycle?
  • Overview of default and recovery rates
Class Discussion: What will be the likely impact of increased default volumes and increased credit market volatility? How will this affect your business?

  • Examine how companies fund themselves
  • The risk return profile
  • • Short, medium and long term debt products from the banking and capital markets
  • Which products are appropriate for which purposes and why?
  • Asset based, seasonal and cash flow lending
Exercise: For each borrowing need, identify the appropriate product or products

  • Examine preliminary loan screening
  • What is the request? Identify the proposed loan terms
  • Is the request within bank policy?
  • Quick and dirty - purpose and payback
  • Who is the borrower? What is the reason for the loan?
Exercise: Participants review loan requests and identify sources of repayment

  • The Rating Agencies
  • The rating agency approach - Rate through the cycle
  • Why rating agencies lag the debt and equity markets
  • The rating outlooks
  • The vicious circle - How rating downgrades can trigger liquidity crises
Exercise: The Credit Cliff Homework - Case Studies: Participants are introduced to the case studies credit cliff

Day 2
  • Define and examine industry and corporate strategy
  • The importance of using a Risk Evaluation Framework
  • Using established industry and business analysis techniques from the credit perspective
  • SWOT, Porter
  • Company overview: History, organizational structure, product lines, customer base, suppliers, market position, management and overall strategy
  • Management is key
  • Characteristics of effective management

  • Review accounting and historical financial statement analysis
  • Income statement - revenues, cost of sales and profitability
  • Balance sheet - capital expenditures and working investment, asset efficiency, liquidity and leverage

  • Ratio analysis
  • What can ratios measure?
  • Profitability, performance, liquidity, solvency, leverage, efficiency, cash flow
Exercise: Company identification using ratios

  • Review and apply cash flow analysis
  • Creating and interpreting cash flows
  • Differences between company produced and derived cash flows
  • Analysis of cash drivers
  • Operating cash flow, net operating cash flow, EBITDA: when
  • Pitfalls of EBITDA
  • Working capital analysis
  • Capex analysis (maintenance vs. growth)
  • Complications of analyzing cash flows
Exercise: Calculating profit versus cash flow Exercise: Calculate a simple cash flow statement

Day 3
  • Early Warning Signs and Creative Accounting
  • Non-financial signs
  • Financial signs - income statement, balance sheet and cash flows
  • Bank internal warning signs
  • Creative Accounting
Exercise: Searching for early warning signs in Amerco's annual report

  • Define and examine debt capacity
  • Calculating debt capacity from projected cash flows
  • Compare debt capacity to credit request
  • Alternative sources of repayment
Case Company: Participants use the model to assess debt capacity

  • Loan structuring
  • Who is the borrower?
  • Facility structure
  • Corporate structure
  • Seniority
  • Structural subordination

  • Examine different types of risk
  • Credit
  • Market
  • Operational
  • Liquidity
  • Country
  • Macroeconomic

  • Structured credits
  • LBO's, MBO's
  • Why use leverage?
  • Optimal level of debt?
  • Structuring Differences
Exercise: Leverage finance case study

Lunch included for all students taking day classes.