Early Warning Signals: Liquidity & Refinancing Challenges Workshop

FitchTraining
London, United Kingdom

Course Format: Classroom | E-learning | Virtual Class | Online | On-site | Blended | Self-paced

Course Description:

'' Course Objectives
This two-day masterclass will provide a structured and systematic approach for identifying early warning signals, which can be applied to companies in different sectors.

The aim is to equip participants with the knowledge and skills to proactively:
Apply a structured analytic approach to uncover early warning signals using financial, non-financial and market indicators
Identify the likely triggers or events which would change the credit standing of a company in the future
Extract recurring themes and lessons learned from recent examples of credit deterioration
Review the role of debt structures in providing signals and safeguards for creditors in a distress situation.
Target Audience
Experienced credit risk managers and fixed income investors.

The majority of Fitch Training programmes are offered at an intermediate and advanced level. There are no specific prerequisite courses to attend our programmes, however some topic knowledge maybe required. Please refer to the target audience to see what level of prior knowledge is required for a specific course.

Content
ANALYTIC OVERVIEW
Signs of distress

Common features of problem credits
Symptoms of a company’s deteriorating credit standing: financial, non-financial and market indicators
Cost of credit: credit migration for fallen angels; need to spend 80% of time on 20% of the credits that are vulnerable

Structured analytic approach

Four step approach to focus on key issues: purpose, payback, risks and structure
Purpose of the borrowing: evaluate appropriateness and assessing the potential for structural subordination
Primary and secondary sources of payback: refinancing alternatives, volatility of cash-flow profits over time and potential impairment of market value of assets
Risks to repayment: Identify the key macro, sector and company specific business and financial risks which might jeopardise repayment
Debt structure: conclude on appropriateness of the facilities, assess the level of protection and critique the pricing to assess the risk: return

SECTORS IN DISTRESS
Key macro economic and sector trends, which are likely to erode creditworthiness:

Using a structured approach to understanding a sector
Uncover market sentiment: identify which sectors currently trade wider than others
Criteria for successful players in the sector and indicators of vulnerable companies
Identify market trends and sector impact on key cash-flow drivers: operating profits, working capital levels and capex requirements
Benchmark performance and interpret peer information
The challenge of regulated industries: is management geared up to deal with changes in the regulatory environment?
Contagion risk and early warning signals
How to anticipate sector collapse: the next distressed sectors

COMMERCIAL VIABILITY
Operating and investment activities
This section will focus on companies with broken business models and companies in crisis. It will also examine challenges facing capital intensive companies:

Business risk: uncertainty of cash-flow profits over time
Business model and measuring its success: earnings and cash-flow indicators
Risk of lending to companies which are reinventing themselves
Sector and the business drivers of capex and RandD investments
Lending to companies with in-house finance operations: vendor finance and securitization

Management and shareholders
This section will focus on comparing management responses to a challenged sector:

Companies in crisis: attributable to poor strategy or operational inefficiencies?
How to recognise weak management
Unravelling risks associated with complex group structures and dominant shareholders
Companies with limited disclosure: when is transparency insufficient?

FINANCIAL RISK
This section will focus on the appropriateness of a company’s funding structure in light of its business risks and financial goals:

Assessing the appropriateness of the capital structure: amount and structure of the debt
Evaluating financial risk indicators and comparing against peers
Understand a company’s financial strategy: ratings targets and shareholder value
Quantifying liquidity and financial flexibility
Anticipate refinancing risk, considering long term debt run-off and payment readiness
Assess corporate treasury objectives: tenor matching, funding and liquidity needs
Heightened financial risk due to off balance sheet obligations, such as operating leases, selling assets with recourse, put options, pensions and post retirement health benefits
Evaluating other sources of repayment: asset disposals and market value of these assets
Lending against large cash balances
Forecasting debt servicing: explicit and reasonable assumptions
Companies with limited access to the equity market: debt and equity in conflict
Companies which grow rapidly using debt financed acquisitions

CRITIQUING THE DEBT STRUCTURE
This section will go into the strengths and weaknesses of debt and bond structures:

Purpose: who is the borrower? Where does the debt rank against other obligations? Is the debt profile in line with the needs and the risk?
What protection has been negotiated; strong and weak forms of protection
Covenants as a way to monitor the credit standing of a customer
The need to be proactive in protecting the portfolio
Alternative actions once credit deterioration is feared
Conclusion: is the bank/investor adequately protected against credit deterioration.
...''

Elements of this syllabus are subject to change.

Phone:+ 44 (0) 20 7201 2770

School Address:

28 Headfort Place

Jobs & Resumes: London
Houses & Roommates: London
Travel Agencies: London

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