Credit Syllabus
Summer 2013
Professor Alexander Aikens
The purpose of this course is to introduce students to credit risk analysis, credit process management,
and the consequences of credit mistakes. We will explore credit from two perspectives, fixed income
investors and commercial bank lenders. Topics covered will include seasonal finance, intermediate term
credit grants and longer term credits (e.g. private placements and long-term bonds and debentures).
Our focus will be on corporate credit issuers as opposed to government and sovereign issuers. Finally,
we will explore specific forms of credit grants including lending against future cash flows, grants which
are supported by collateral, and grants against asset valuation.
The workload is high. If you are taking more than 16 credits, this course should be avoided.
Learning Expectations for Students:
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Ability to think about and analyze credit risk
Understanding both qualitative and quantitative analysis
Credit structuring, covenants, collateral, inter-creditor arrangements, loan syndication
Problem identification and resolution
To develop the ability to write up credit analysis
COURSE REQUIREMENTS
Prerequisite: FIN 212a or equivalent
Required Reading
I have created a course area on the Harvard Business Online website where you can order required
materials for this course. Click on the link to order: http://cb.hbsp.harvard.edu/cbmp/access/26555204
If you have not registered with Harvard Business Online, you will be required to do so.
Recommended Reading
I have posted on LATTE three readings that you may wish to read (or at least skim) to gain a deeper
insight into how US rating agencies, regulators and bankers think about credit risk. From Standard &
Poors, you will find “A Guide to the Loan Market”, from the Office of the Comptroller of the Currency
(the principal regulator of US banks), you will find the handbook, “Rating Credit Risk,” and from a terrific
former JP MorganChase commercial banker and credit officer, you will find, “A Primer on Deals for
Middle Market Bankers.”
Class Participation
Lively class participation is expected of everyone in this course, and class attendance is required. Each
week, there will be a new case assigned and every student is expected to be prepared to discuss the
case in detail, including a thorough analysis of the financial statements. To facilitate participation,
please place a name card on your desk.
Grading
Grades will be a function of three factors: Class participation 30%; homework assignments 30%; and
final paper 40%. Homework assignments must be done individually except for one homework
assignment which will be done on a team basis. A homework template will be distributed under
separate cover prior to the first homework assignment. I will designate the teams and team members
will receive the same grade.
*Perfect attendance but no participation receives a grade of C+ towards the overall grade.
(Participation is when you raise your hand to contribute, not if I “cold call” on you.) Each unexcused
absence results in a reduction in this grading element (B+ to B and so on).
Office Hours: Students can meet with me individually by appointment.
Academic Honesty
You are expected to be honest in all your academic work. The University policy on academic honesty is
distributed annually as section 5 of the Rights and Responsibilities handbook. Instances of alleged
dishonesty will be forwarded to the Office of Campus Life for possible referral to the Student Judicial
System. Potential sanctions include failure in the course and suspension from the University. If you
have any questions about my expectations, please ask. Under no circumstances may you search the
internet, or turn to any other outside source, for any information regarding these cases without my
permission. Failure to comply with this directive is cheating.
Special Accommodation
If you are a student with a documented disability on record at Brandeis and wish to have a reasonable
accommodation made for you in this class, please see me immediately. Please keep in mind that
reasonable accommodations are not provided retroactively.
Class One: The Introduction - Wed July 9
 Professor introduction
 Topic and Course Overview
 Student objectives and introduction
 5C’s of credit
 Critical credit questions, (e.g. how much, how long, for what how will you repay, if that doesn’t work
how will you repay
 Credit analysis tools and application
 Historic Analysis
 Reading: Financial analysis, cash flow analysis Handouts. (to be distributed via latte)
Class Two: The Basics – Wed July 16
We will explore basics of credit including the purpose of the loan? How do you plan to pay it back? To
the extent the purpose is to finance growth, we will examine viability. Finally we will discuss fallback if
primary sources of payment does not work out.
Harvard Business School Cases:
Hampton Machine Tool Company 9-208-103
Clarkson Lumber 9-297-028
Reading: Note on Bank Loans 9-291-026
Class Three: The Environment – Wed July 23
Issues that Effect Credit Performance and Value
Topics:
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Role and Impact of Industry. Critical success factors in Industry. Industry changes that impact
credit performance.
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Micro Economy impact on credit performance. Cases: Surecut Shears Inc & Spreadsheet
Supplement 297-013.
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Readings: M Porter the five forces that shape strategy.
Class Four: Issuer Value – Wed July 30
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Examination of corporate business models
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Business value propositions
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Commercial value creation
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Business growth and impact of credit values
Cases:
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Dollar General A & B 9-607-140:9-607-156
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Dollar General going private 108-015
Class Five: Trouble – Wed Aug 6
Predicting Credit Problems. We will examine warning signals of imminent credit problems. When firm’s
credit performance deteriorates, what options do firms have to avoid bankruptcy.
Cases: Amazon in the Year 2000 9-101-045
Amazon.com: Brink of Bankruptcy 5-809-081
After case discussion we will discuss the basics of Chapter 11 bankruptcy reorganizations in the US &
Chapter 7 liquidations and global liquidations.
A Final Paper outline will be distributed .
Class 6: The Wrap Up – Wed Aug 13
Role of credit securities in investor portfolios.
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Outside speaker will lead first hour of class.
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Discussion of Final Paper requirements
Case: Blaine Kitchenware, Inc : Capital Structure #4040
We will discuss the role of credit in a real world situation, and we will go beyond simply credit financing
and explore the entire capital structure .