Credit Analysis Flashcards
What is the usually base for an issuer credit rating?
Senior unsecured debt
3 factors to consider when analyzing Collateral of a firm:
Equity Cap.
Depreciation
intangible assets
Structural subortination means the parent company has (Subordinate)
Second Lien
Pari Passu
1.Lower priority to claim CFs from the subortinate.
The CFs are used to pay subordinate debts first
- HIgh priority of claims than unsecured debt
- Equal priority of claims of different issues in same category
Loss severity
Recovery rate
- Amount of $ or % that investor will lose (default)
- Amount or % that will be recover
4 C’s are:
Covenants
Capacity
Character
Collateral
What is the priority of claim regarding bonds. Give two examples of secured debt
1. Secured debt
- Collateral debt
- Equiptment trust Certificate
2. Unsecured debt
FFO - Funds from operations
Net income from operations
+Drepciation
+Amortization
+Deffered taxes and noncash
What means “Widen in corporate yields”.
When is it occurs?
Increase in credit risk
Occurs when economy contracts
What is more risky: Munipal credit or Corporate bonds?
About Soverign bonds and repayment.
Municipal credit tends to default less than corporate
Soverign can prit money to repay debt
Protection to lenders
1.Restricted payment convenant
2. Restricted Subsidiare’s CFs
3. Change of control PUT
- Restrict the amount that will be paid for equity holders
- Prevents the parent company to do a pari passu rank with the subsidiary
- Changes of control obligates de borrower (issuer) to buy back the debt
What is the most risky bond between General Obligation and Revenue bonds?
Revenue > GO
Revenue depende da receita
GO é imposto rs (Levy property tax)
When an analyst should add to total debt obligations ?
Lease from operating, Underfunded pension
