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Advanced Credit

How to analyse corporate credit risk and how to assess an appropriate return

Advanced Credit Course

A two-day course

  • The course covers a range of more advanced credit topics, including parent/subsidiary/affiliate rating linkages, credit enhancement methods, the credit impact of M&A transactions, LBOs and documentation, with a focus on covenants
  • The course combines financial theory with recent transactions and practical examples designed to be relevant to delegates' actual work experience
  • We examine recent LBO and M&A deals to understand the agencies’ and the market’s approach to assessing a business, financial and other risks
  • Delegates will be given a comprehensive LBO forecasting model that incorporates key credit statistics, scenario analysis, data tables and return analysis

  • Analyse the impact of corporate finance activity on credit quality
  • Understand the main considerations for establishing parent/subsidiary ratings
  • Analyse, structure and model leveraged buyouts
  • Understand certain aspects of credit documentation, with a particular focus on covenants

Day 1

Parent and subsidiary rating linkage

  • Credit assessment of groups, the importance of ownership, analysing a group
  • Proportional debt, earnings and cashflow of entities that are not wholly-owned
  • Non-recourse projects eg associates and joint-ventures
  • Non-guaranteed subsidiaries
  • Captive finance subsidiaries
  • Fitch criteria for associates, j/vs, subsidiaries
  • S&P criteria for associates, j/vs, subsidiaries, captive finance subs

Credit enhancement methods

Securitization

  • Typical structure and participants
  • Creating cashflow ring-fencing measures
  • Rating considerations

Credit linked notes

Case study of a major ring-fencing mechanism to give lenders additional protection

Impact of corporate finance transactions on credit quality

  • Mergers, acquisitions, disposals, breakups, demergers, etc
  • Is the impact positive, negative or neutral?
  • Case studies: impact of M&A on credit quality

Day 2

Leveraged buyouts

  • Rationale to LBOs
  • Structuring an LBO – sources and uses of funds
  • Modelling for the new capital structure
  • Matching debt to cash flows and the asset base
  • Cashflow based lending versus asset-based lending
  • Modelling for new equity injections and dividend recaps
  • Modelling new loan features eg PIK, amortizations, equity kickers, shareholder loans
  • Structuring the debt to include flexibility for different cashflow outcomes
  • Reviewing a comprehensive LBO model and applying scenario analysis
  • A quick method of modelling and analysing an LBO
  • Assessing returns to equity and subordinated lenders

Documentation and covenants

  • What is the purpose of the loan and is it related to the repayment sources?
  • What is the structure of debt facilities?
  • Reps and warranties, conditions precedent, negative pledge
  • MAC clauses, events of default, cross-default, equity cures etc
  • Covenant definitions (financial), including off-balance sheet liabilities
  • Covenant definitions (non-financial)
  • The nine key covenants for event and recapitalisation risks
During the course, we reference and analyse a range of case studies including Casino, Bayer/Monsanto, EliLilley/Loxo, Campbell, Anheuser-Busch InBev, Pizza Express, Power Solutions, PureGym, Refinitiv.

A former Executive Director of CSFB and Lehman Brothers, the trainer has spent seventeen years working as an investment banker in Europe and the US. She has principally worked in the credit markets and has experience of the US and European high grade and high yield markets, the European new issue markets, the Asian convertible bond markets, as well as corporate restructurings of distressed credits. She also has extensive experience of corporate finance transactions, including bankruptcies, mergers, disposals, privatisations, IPOs and capital raisings. She was latterly an Executive Director at Lehman Brothers in Fixed Income Research in London.

The trainer graduated from the London School of Economics in 1986 and then joined Kleinwort Benson Ltd as a graduate trainee. She worked initially on analysing, structuring and investing in US LBOs and MBOs and also US high yield debt. Thereafter she worked in Kleinwort Benson’s European corporate finance department, gaining experience of IPOs, mergers, acquisitions, disposals and corporate restructurings, with particular focus on receivership and bankruptcy situations.  She then moved to CSFB’s fixed income department as the lead European corporate credit analyst, covering new issues and secondary trading and advising clients on their fixed income portfolios. She was then head-hunted to go to Lehman Brothers as lead corporate credit analyst. She specialised in high-grade and cross-over telecoms, including new issuance and advising proprietary traders and fund management clients on their investments.

For the last ten years, the trainer has worked as an expert witness in financial trials and also as a financial trainer and consultant with major training firms, covering basic and advanced corporate credit analysis and valuation, distressed debt and financial modelling.

Through every business cycle, banks and other financial institutions lose billions of dollars as a result of their failure to analyse credit risk correctly and to foresee downside risks. Even if these institutions do not suffer direct financial losses due to default/market movements, they may be receiving an inadequate return for the risks involved. Given the increasing use of leverage by both the private and public equity markets, combined with heightened sovereign/geopolitical risks, in-depth credit analysis is essential to avoiding credit and currency losses. The aim of this course is to teach delegates how to analyse corporate credit risk and how to assess an appropriate return. This course does not extend to the analysis of banks, insurance companies or structured vehicles.

Have this course presented In-House

  • On a date, time and in a location of your choice
  • Topics expanded or deleted to your bespoke requirements
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