Corporate Credit and Debt Structuring

Part One

Background to corporate credit analysis

• Defining corporate credit analysis

• Probability of default and the link to credit ratings

• Loss given default and recovery assessments

• Overview of key considerations for credit analysis and how actual or shadow ratings are determined

Considerations for debt structuring

• Group size and listed versus unlisted status

• Sovereign and sector outlook

• Earnings and cash flow volatility

• Growth outlook – can the firm grow into its debt burden

• The impact of higher and rising interest rates

• The firm’s financial objectives Debt maturity profile; current or target credit rating; non-recourse funding; targeting the WACC

Funding requirements

Notching of credit ratings

Case studies: working out funding requirements for different situations; analysing the impact of different debt structures using an Excel model

Defining an optimal capital structure

• Does the firm have an optimal capital structure? Defining enterprise value and equity value

• Overview of WACC

Case studies: moving from equity value to EV; working out the WACC

Part Two Overview of the client’s financial position, earnings and cash flow

• Calculating gross and net debt, including off-balance sheet exposures, leases and hybrids

• Calculating net finance expense including adjustments for capitalised interest, hybrid costs, forex losses and accretion expense

• Assessing quasi debt including retirement benefit liabilities and derivatives

• Assessing seasonal working capital requirements

• Assessing actual liquidity and potential liquidity sources

• Assessing the asset base as a source of security

• Calculating key credit ratios based on the group’s current financial position

• Assessing the profile of earnings and cash flow, including the growth outlook, risks and volatility

• Case studies: working out debt calculations for complex situations; working out key credit ratios

Financial modelling and forecasting

• Assessing the firm’s debt capacity under different scenarios

• Capacity for amortising debt

• Managing cyclicality

• Case studies: Applying different capital structures within an Excel forecasting model and assessing the impact on leverage, interest coverage, debt service coverage, cost of funding, actual or potential credit ratings, WACC and eps

Covenants

• What is covenant loose?

• What is covenant-lite?

• Recent trends in covenants in the bond and syndicated loan markets

• Financial and non-financial

• The construction clause - definitions

• The compliance certificate

• Value maintenance covenants

• Leverage and limits of indebtedness

• Interest cover

• Limitations on dividends

• Limitations on investment spending

• Limitations on M&A and disposals

• Negative pledge

• Limitations on sale and leasebacks

• Limitations on demergers

• Change of ownership or control

• Grace periods

• Freebie baskets

• Mulligan clauses

• Carve-outs

• Equity cures

• Case studies: analysing different covenant packages

Monitoring of the client group

• Regulatory recommendations and requirements

• Setting reporting requirements – management financial statements, audited financial statements

• Regular credit reviews and meetings with clients

• Ongoing security verification

• Covenant monitoring

• Monitoring of the sovereign(s) and sector(s) and other market indicators

• Monitoring of the owner(s) and guarantor(s)

• Monitoring of changes in management and strategic direction

• Use of watch lists and EWS

Overview of debt products – long-term non-capital markets

• Bilateral term loans & leases

• Syndicated term loans – investment grade

• Syndicated leveraged loans

• Mezzanine finance

• Private placements

• Unitranche funding

Overview of debt products – long-term public debt issuance

• Investment-grade bonds

• High-yield bonds

• Green bonds

• Commodity-linked bonds

• Bridge bonds

Overview of hybrid securities

• Convertible and exchangeable bonds

• Mandatorily convertible bonds

• Equity neutral convertible bonds

• Subordinated long-term bonds

• Assigning equity credit to hybrid securities

Training Objectives

Delegates should attend his Corporate Credit and Debt Structuring course because:

• It will give the delegates a background to corporate credit analysis and how to assess a firm’s current financial position and debt servicing capacity

• It will improve the delegates’ understanding of how to assess a firm’s funding requirements and whether the firm can service its forecast indebtedness

• It will help delegates understand the potential impact of new funding structures on the firm’s WACC, actual or implied credit ratings and earnings per share

• It will help delegates understand different types of debt and hybrid funding instruments, including loans, bonds, private placements, unitranche funding, convertible bonds, exchangeable bonds, preferred and mezzanine

• It will enhance the delegates’ ability to use financial forecasting models to help generate credible financing recommendations to clients and to structure transactions

• It gives delegates an overview of useful covenants and how to monitor a borrower following approval and/or drawdown of the borrowing facilities

Training Course Summary

This course is intended for investment and commercial bankers, other types of lenders and private equity investors who are looking to develop financing solutions for corporate clients or invest in corporate debt instruments. The course covers a background to corporate credit analysis in order to assess the firm’s current financial position, debt servicing capacity and implied credit rating. We then look at assessing the firm’s financing needs and the likely impact on key metrics such as its credit rating (actual or implied), its WACC and eps. We consider a wide range of debt and quasi-debt products such as overdrafts, RCFs, tailored NWC facilities, senior and subordinated bonds and loans, leases (IFRS 16), private placements, off-balance sheet funding and hybrid debt (convertible bonds (CBs), mandatory CBs, exchangeable debt, equity-neutral CBs, preferred shares). We also highlight factors such as relative costs, covenants and security, special features (e.g. coupon step-ups, reserve accounts, commodity-linked coupons and principal, embedded sovereign insurance) and diversification of the funding/investor base.