IV-Credit Analysis-2

Question 1

1. Expected loss =
2. loss severity =

Answer 1

1. expected loss=default probability*loss severity given default
2. loss severity=1- recovery rate

Question 2

名词解释

1. first lien debt
2. pari passu
3. cross-default provision
4. structurally subordination
5. change of control put
6. restricted/ unrestricted subsidiaries

Answer 2

1. 最高seniority债。lien的都是secured
2. “on an equal footing” 同一seniority的债券，无论其到期日等条件，享有claim权相等
3. one default triger all other outstanding bonds
4. 子公司债务convenant规定不许向母公司分红，母公司CF下降导致母公司债券评级下降
5. 垃圾债：若公司被并购，债权人有权要求公司购回债券
6. restricted: 子公司有责任帮母公司一同偿还债务

Question 3

评级机构评级分类

阐述

注意

Answer 3

1. high-quality grade: Aaa/AAA, Aa1-Aa3, Aaa+ - Aaa-
2. upper-medium grade: A1-A3, A+ - A-
3. low-medium grade: Baa1-Baa3, BBB+ - BBB-
4. Junk: Ba1 - B - Caa - Ca - C

BB+ - B - CCC+ - CC - C - D

5. Moody没有Default grade

Question 4

1. issuer rating/ issue rating 2
2. notching 定义
3. notching 特点

Answer 4

1. issuer: overall creditworthiness, usually senoir unsecured rating
   issue: consider bon’s seniority ranking
2. issue & Issuer rating之差（可高可低，多数更低）
3. 平积越高的公司，notching越小

Question 5

limitations of 评级机构

Answer 5

1. lag the market

credit rating是关于default risk的，若出现两个bond评级相同，但价格差别大，可能因为default risk相同，但由于评级都很低，大家更关注default时的loss severity，因此回收率更高的bond价格更高

2. agencies can make mistakes
3. unforeseeable events

Question 6

1. Equity Analysis/ Credit Analysis更关注
2. 4C of credit analysis

Answer 6

1. Equity: income statement/ CF statement

Credit: balance sheet/ CF statement

2. capacity/ collateral/ covenants/ character

Question 7

【4C credit analysis】

1. capacity 包括
2. FFO
3. FCF before div

Answer 7

1. industry structure (波特五力) - indsustry fundemental (周期) - company fundementals
2. Funds from Operations: NI from continuing operations + dep/amor + deferred income taxes+other non-cash items
3. Free cash flow before div: NI + dep/amor/ - increase in working capital - capital expenditures

=CFO - net cap exp

Question 8

1. Yield on corp bond =
2. yield spread =

Answer 8

1. = real risk-free interest rate + expected inflation + maturity premium + liquidity premium + credit spread
2. = liquidity premium + credit spread

Question 9

1. high-quality bond 分析更侧重
2. high-yield bond 分析更侧重2
3. 分析non-soverign bond比主权债更侧重

Answer 9

1. default risk, 因loss severity 还不需要太考虑
2. spread risk/ loss severity
3. balance and operating budget of local government. 因为没有能力印钞