Certificate in Corporate Credit Analysis

The course is not modular and we welcome active participation in every part of the programme, in order to reach the overall learning objectives. In general, the moderator will introduce the topic and then allow the participants to apply techniques to case studies based on actual companies. Even in a virtual environment and depending on the overall size of the group there will be plenty opportunities for personal preparation, group work and group discussions and debriefs. Case studies and exercises are drawn from a range of industries and regions, and where possible include investment grade as well as sub-investment grade companies operating in mature and/or developing financial markets.

Analytic Overview : Introduction of the four-step approach to any risk exposure: Purpose of transaction, sources of repayment, risks to repayment and structure of debt or exposure needed to safeguard repayment

Application: Identify the true purpose of borrowing, the source(s) and risk of repayment, and the expected structure of the debt for several companies using company descriptions and key financials.

Macro Considerations : Macro risks in the operating environment, financial markets, and industrial sector a borrower operates in.

Location: Country risk and markets where a borrower raises funds

Sector: Competitive intensity of the sector(s) a borrower operates in; structure, key players, basis of competition, risk of new entrants, substitution and relative bargaining power of buyers and suppliers

Long-term growth potential and volatility of demand

Application: Illustration case study provided as pre-course material

Application: Identify asset configurations, funding structures and earnings of companies in different sectors

Management and Ownership : The role and strategy of the management team, and the influence and control of shareholders are assessed.

Management’s business and financial strategy and performance goals

Corporate governance and reporting structure

Group structure and shareholders

Quality of financial reporting

Application: Illustration case study provided as pre-course material

Business Profile : Understanding a company’s business strategy in the context of sector, country of operation and shareholder requirements.

Diversity of services/products, geographical end markets, customer and suppliers.

Competitive position: Product dominance and a company’s relative market position. Comparative size and possible operating efficiencies.

Sector-specific factors.

Application: Illustration case study provided as pre-course material.

Financial Profile – Cash Flow and Profitability : Assessment of the quality and stability of earnings and cash flows from operations needed to finance operations and capital investments (‘Business Risk’).

Earnings and cash flow

Internal and/or external factors impacting revenues and core profitability

Performance vs. the market and per division/geography

Foreign exchange/interest rates exposure and its impact on cash flows. Hedge accounting and impact of IFRS9 on reported company earnings

Application: case study with exposure to FX and commodity prices

Impact on performance of different cost structures, non-operating and exceptional items

Looking beyond EBITDA at sustainability of funds flow from core operation (e.g. funds from operations – before changes in working capital)

Application: illustration case study using additional financial ratio and sector peer information

Asset investment and efficiency

Working capital management, cash conversion cycle and supplier finance

Application: comparison of cash conversion of companies operating in the same sector

Cash flow impact of the company’s working capital management stability of cash flow from operations

Asset quality and off-balance sheet ‘assets/liabilities’

Example(s)

Financial Profile – Funding Structure and Financial Flexibility

Evaluation of the appropriateness of a company’s funding structure and ability to service its financial obligations (‘Financial Risk’).

Capital structure and funding instruments used

Financial discipline and dependency on external financing

Funding instruments used, tenor, currency of the debt and any off-balance sheet financial obligations

Financial leverage and comparison with the business risk from operations

Application: Illustration case study using additional financial ratio and sector peer information

Financial profile – financial flexibility

Debt service capability: Affordability of the level of debt – meeting interest and debt repayments obligations (debt service) from internally generated cash over the past years and based on future cash flow available for debt service

Application: Assessment of the capital structure and debt service capability for several companies operating in a similar sector

Debt capacity assessment: Present value of future cash available for debt service

Foreign exchange exposure, hedging strategies and potential impact on cash flow and debt servicing capability

Refinancing risk and liquidity: Ability to meet short-term financial obligations as they fall due from current operations

Application: Illustration case study using additional financial ratio and sector peer information

If time available: Fitch Ratings Corporate Navigator - interactive tool used in assessing an issuer default rating

Debt Structure

Overview of main elements of debt structures.

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 and loan prices

Market indicators of credit risk: Credit ratings, bond spreads vs. rating curves, share price

Forecasting and Sensitising Key Cash Flow Drivers

Forecast operating performance and asset investment requirements using a basic Excel cash flow model calculation of present value of cash flow available for debt service

Application: illustration case study –set scenarios to test the robustness of future cash generation and key vulnerabilities