Managing Credit and
Counterparty Risk
Marshall Bohbrink
VP Risk Management & Treasurer
GROWMARK, Inc.
November 9, 2009
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30-Day LIBOR Rate - 1 Year
4.50%
4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
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SAFETY AND
INSURANCE
POLICY AND
PROCEDURES
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Various Types of Risks (ERM)
Commodity price risk
Interest rate exposure
Governmental and Regulatory issues
Property and Liability
Strategic issues
Succession planning
Disaster Recovery
Credit and Counterparty
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Do you roll the dice with credit?
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Types of Credit and
Counterparty Risks
Accounts receivable
Vendor prepayments
Deposit or down payments
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Types of Credit and
Counterparty Risks
Derivative Transactions
– Interest Rates
– Foreign currency
– Commodity
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Types of Credit and
Counterparty Risks
Contractual
– Fixed price
– Hold harmless
– Indemnification
– Make whole
– Moral/Failure to deliver
Product or Work Quality
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How to Forecast and Mitigate
Analytical analysis
Subjective analysis
Forms of financial support
Proactive vs reactive strategies
Written policies
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How to Forecast and Mitigate
Analytical analysis
– Review financials
– Ratio analysis
– Obtain credit scores
– Bank or vendor references
– Signed credit application
– Industry comparatives or
benchmarks
CA
WC
CL
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How to Forecast and Mitigate
Subjective Analysis
– Reputation
– Personal success
– Years in the business
– Personal references
– View of management skills
– Quality of operations or business
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How to Forecast and Mitigate
Financial Support
– Letter of Credit
– Security filing
– Guarantee
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How to Forecast and Mitigate
Proactive vs. Reactive Risk Management
– Do the homework
– Early and often
– Be fair but firm
– Know the limits
– Create a balance
– Adjust to the times
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How to Forecast and Mitigate
Policies
– Board risk management
– Credit approval
– Communication requirements
– In writing
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Or is it being managed?
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