Course Outline
Corporate Credit Analysis
Objectives
The overall goal of this four-day workshop is to enhance analytic skills. 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. The
workshop will enable participants 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.
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.
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Course Outline
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
o Influence of social issues
o Government intervention and regulation
o Political and sovereign risk.
Sector
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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
Illustration case study: key sector risks and critical success factors.
Management and Shareholders
Review the strengths and weaknesses of management and the influence of company ownership:
 Management performance
 Corporate aims and goals and their effect on the company's future
 Shareholder structure, support and influence
 Illustration case study: identify management strengths and weaknesses and shareholder structure /
support.
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Course Outline
Risks to Repayment (cont.)
Business Risk
Assess a company's business strategy in order to understand the asset investment needs and commercial
viability of a company and their effect on the quality and stability of cash flows.
Business strategy
o A company's markets, products, services and competitive position
o Corporate actions underpinning its growth strategy
o Illustration case study: how well positioned is the company and to what extent does it address
sector's critical success factors.
Earnings dynamics
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Quality and stability of revenue and cash flow from core operations
Cost base analysis, profitability and cash flow measures
Peer and ratio analysis to evaluate performance
Different accounting conventions and misleading accounting practices
Exercise: analysis of earning dynamics in specific company situations
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Asset management
o Asset conversion cycle, asset efficiency and investment needs
o General and industry specific ratio and cash flow tools to analyse and compare asset efficiency
o Exercise: identify 2 or 3 companies operating in the same industry but with different business models
using key asset management ratios
o Illustration case study: using peer and ratio analysis to assess and compare asset management and
effect on current and future cash-flow generation.
Cash flow drivers
o Forecast operating performance and asset investment requirements
o Illustration case study: robustness of future cash generation and key vulnerabilities.
Financial Risk
Evaluate the appropriateness of a company’s funding structure given the operating environment, management
and shareholder goals and overall business risk and an evaluation of its debt service ability and refinance risk.
Financial strategy
Corporate treasury objectives:
o Risk appetite of capital providers
 External rating maintenance
 Tenor matching, funding and liquidity and refinancing needs
o Alternative sources of funding: trade, bank debt, capital markets, structured finance, equity etc.
Liquidity
o Financial flexibility: measuring liquidity or payment readiness
o Funding instruments used by companies that can increase the refinancing risk and overall financial risk
o Exercise: assessment of payment readiness for one or several companies in a variety of sectors.
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Course Outline
Risks to Repayment (cont.)
Solvency
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Funding structure including off balance sheet obligations
Debt servicing ability using cash flow analysis
Rating medians to evaluate a company’s financial standing
Exercise: Assess the degree of financial risk and debt servicing
Future cash available for debt service using a simple debt capacity cash-flow model
Refinancing risk: debt capacity vs. borrowing capacity
Exercise: Debt Service Coverage Ratio
Illustration case study: using peer analysis and cash flow forecast to assess overall financial risk,
debt service capability and refinancing risks.
Structure
Review the appropriateness of existing or new debt instruments
 Debt profiles in view of repayment sources
 Ranking: different ways to achieve seniority or pari passu ranking vs. other capital providers
 Safeguards: the use of financial and non-financial covenants to mitigate risk
 Pricing fundamentals: bond prices, swaps and CDS
 Illustration case study: conclusion on the appropriateness of debt structure.
Group Case Study (Studies)
The aim of this group case study is to allow participants to apply the framework and tools of credit analysis to
a company and make a concise and conclusive presentation to the group on the final day of the course:
 Preparation and presentation of a complete credit analysis and critique of a financing proposal in small
groups of 2 to 5 participants
 Companies used for the group case studies vary per location of the course.
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