Instructor by : Herry Achmad Buchory
To revise and enhance analytic skills in order that participants will become:
- Structured and focused in their approach to analysing corporate credit risk
- More effective in assessing the success of a company’s business model and the appropriateness of a company’s capital structures (i.e. the degree of liquidity and the ability to service debt)
- Better equipped to critique the terms and conditions of credit instruments to ensure that they reflect the commercial needs of the business and protect the debt provider’s position.
The course makes extensive use of case studies, live examples and exercises to ensure that the training is highly interactive, practical, topical and challenging. Case studies are drawn from a number of countries and industries and provide participants with the opportunity to practice the application of the analytic frameworks and tools in context of real situations. The emphasis is on developing critical judgement; participants are required to be focused, practical and realistic in their approach.,
A. PURPOSE~ PAYBACK MODEL: A STRUCTURED ANALYTIC APPROACH
- A 4-step approach to credit analysis: Purpose, payback, risks and structure
- Purpose: identifying the borrower and the potential for structural subordination
- Assessing repayment sources: refinancing / access to markets, cash flow profits, market value of assets and third party support
- Risks to repayment: identifying sector, management, business and financial risk
- Structure: evaluating the risks in the exposure profile, ranking, safeguards and pricing.
B. STEPS 1 AND 2: PURPOSE AND PAYBACK
- Purpose: Payback: the challenges to identifying and analysing credit risk.
C. RATINGS AND RELATIVE VALUE
- Overview: understanding corporate credit ratings
- Understanding how credit ratings impact market access and debt structures
- The impact of economic cycles on default and recovery rates
- Using default and recovery statistics to evaluate an appropriate level of return (risk adjusted return on capital)
- Understanding why instruments might trade “outside” their rating.
D. STEP 3: RISKS TO REPAYMENT
The operating environment :
- Statement logic: Understanding how the business dynamics impact the asset configuration, funding structure and earnings of companies in different sectors
- Analysing sector drivers: structure, key competitors and the outlook for growth, earnings and cash flow
- Assessing the characteristics necessary for industry success and a company’s ability to create and sustain a competitive advantage.
E. EVALUATING BUSINESS RISK
1. Assessing commercial viability: asset investment and earning dynamics
- Evaluating the business model: a practical approach to assessing the success of management’s strategy
- Use of peer analysis to bench-mark performance: focusing on ratio and cash flow to analyse asset efficiency
- Quantifying performance looking beyond EBITDA: defining, calculating and using operating cash flow to analyse profitability
- Assessing a company’s ability to sustain profitability and cash flow through economic and business cycles
- Different accounting conventions: looking beyond the numbers and uncovering misleading accounting practices.
2. Forecasting the business requirements
- Using qualitative and quantitative analysis to assess future performance
- Assessing forecasts of operating performance and asset investment requirements.
F. EVALUATING FINANCIAL RISK
1. Evaluating financal strategy
- Using business risk to gauge the appropriate level of financial risk
- Identifying an acceptable candidate for leverage
- Understanding a company’s financial strategy: ratings targets and shareholder considerations
- Corporate treasury objectives: tenor matching, funding and liquidity needs
- Credit strength and its impact on access to markets.
2. Measuring financial risk – liquidity
- Assessing liquidity and a company’s financial flexibility: on and off balance sheet and cash flow indicators
- Understanding the limitations of traditional liquidity measures (current ratio, quick ratio and working capital)
- A practical approach to evaluating liquidity – identifying a company’s short term sources and uses of cash (base case, best case and downside case)
- Using the liquidity analysis to determine the need for refinancing
- Determining the causes of a liquidity squeeze and anticipating a company’s ability to react (e.g., access to capital, ability to sell non-strategic assets, third party support).
- Measuring financial risk – solvency Measuring solvency: leverage ratios versus cash flow measures
- Understanding financial risk: the limitations of traditional ratio analysis
- Using cash flow statements to determine debt servicing ability
- Using discounted cash flows to quantify a company’s debt capacity
- Anticipating future borrowing requirements and reliance on market access and refinancing.
3. Understanding the credit implications of various forms of capital
- Debt products: distinguishing features of strong versus weak credits
- Understanding the effects of market demand on access to capital, the degree of structural protection and the impact on pricing
- Understanding how other forms of capital may enhance or diminish a creditor’s position
- Commercial paper: the benefits and the risks
- Bank debt versus bonds: terms and conditions compared, understanding how bondholders are potentially at risk to subordination by bank lenders
- Off balance sheet financing: the implications for other debt providers
- Equity: understanding the difference in viewpoints (upside and downside returns).
4. Assessing management and shareholders
- Management competence: how to evaluate and measure performance
- Corporate aims and goals: their effect on the company’s future creditworthiness
- Evaluating the shareholder structure, the level of support and the degree of influence.
G. STEP 4: DEBT STRUCTURE
- Framework for assessing the structure of a debt instrument: debt profile, seniority, safeguards and pricing
- Seniority: identifying the borrower and the potential for subordination
- Challenges to uncovering ranking and maintaining seniority.
H. APPLIED ANALYTICS: COMPLEX CASE STUDY
Part I: Assessment of historical performance
- Identifying the use of proceeds
- Determining the sources of repayment
- Review of the operating environment and the impact on the company and its peers
- Commercial viability: determining the success of the business model relative to peers
- Funding structure: assessing the company’s historical ability to service debt and meet non-discretionary expenditures.
Part II: Evaluating sources of repayment
- Looking for indicators of quality and value
- Assessing existing liquidity
- Determining the ability to repay
- Evaluating future cash flows
Part III: Conclusions
- Quantifying the key sensitivities and their impact on the ability to service debt
- Conclusions on the credit outlook and the key risks to taking credit exposure.
Lunch + 2 X Coffee Break
Pick Up Participants
TRAINING FEE for Advanced Corporate Credit
Rp. 6.500.000,- / participant / NON residential
Quota minimal 3 orang peserta
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