A Cash-Flow Perspective

Course Objectives

Participants will use a structured and systematic approach to evaluate the credit standing of a company and assess the relative attractiveness of the risk-return profile of the investing / lending proposition. This is a highly interactive workshop where case studies and exercises are used to illustrate key learning points. A case study presentation will form part of the workshop allowing participants to apply the concepts acquired during the workshop to a real-life scenario. Participants are encouraged to be focused and concise in developing and articulating credit judgement.

Specifically, participants will learn to:

• Apply a structured approach to assess the creditworthiness of a borrower
• Evaluate the performance of a company based on qualitative and quantitative frameworks and tools
• Use appropriate market indicators, where available to understand refinancing risk and the market view on a credit
• Identify the key factors that drive a company’s future performance and evaluate the likely impact on its credit standing
• Use a cash flow approach to ascertain a company’s ability to service/refinance its debt as it comes due
• Review debt structures to assess to what extent they meet the commercial needs of the borrower and protect the lender’s interests.

Target Audience

Fixed income professionals, corporate bankers and analysts, corporate risk underwriters and other finance professionals working in credit risk management and credit products areas, including relationship management and debt origination.

Participants should have a firm grasp of accounting and be familiar with basic credit concepts before attending this programme. The two-day Introduction to Corporate Financial Statements is designed as a preparation for those with limited accounting and banking experience.

Content

The analytic tools and frameworks for credit analysis are explained and demonstrated through a wide variety of up to date examples, case studies and exercises. Case studies and exercises are drawn from a range of industries and regions and will appropriately reflect the market and location of the course. Industries where case studies are drawn from include electronics, manufacturing, food or beverage processing, energy trading, airlines, car manufacturing, telecommunications, food retail, steel manufacturing, office service industry, car hire services and packaging.

ANALYTIC OVERVIEW

Introduce and reinforce a structured approach to the analysis of a transaction. Participants will evaluate business needs and focus on the key components of credit analysis:

• Purpose: identify the borrower and use of funds
• Payback: link credit assessment to primary and secondary sources of repayment
• Risks to repayment: the need for sector and company analysis to evaluate debt servicing ability
• Structure: assess the ability of the debt to meet the commercial needs of a company while protecting lenders’ interest
• Exercise: the true purpose of borrowing, the source(s) and risk of repayment, and the expected structure of the debt.

MARKET INDICATORS OF CREDIT RISK

How various market outlook and indicators can be used as warning signals of credit migration or increased refinancing risk:

• Credit ratings
• Debt market indicators: bond spreads vs. rating curves and CDS pricing
• Equity signals: share price movements and key multiples.

RISKS TO REPAYMENT

Macro considerations

Identify the macroeconomic and sector drivers which significantly influence company specific cash flow profiles:

• Operating environment
• Influence of social issues
• Government intervention and regulation
• Political and sovereign risk.

• Sales growth, operating profit margin and working capital requirements
• Capital expenditure and asset requirements
• Competitive forces and critical success factors to sustain a competitive advantage
• Exercise: asset configurations, funding structures and earnings of companies in different sectors.