固定收益证-券Corporate-Bond-Cr课件.ppt
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- 固定 收益 Corporate Bond Cr 课件
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1、Chapter 21 Corporate Bond Credit Analysis Learning ObjectivesAfter reading this chapter, you will understandvthe major areas of bond credit analysis: covenants, collateral, and ability to payvthe reason why covenants must be analyzedvwhat factors are considered in evaluating the ability of an issuer
2、 to satisfy its obligationsvwhat factors are considered in assessing a companys business riskvwhy an analysis of a company must be looked at relative to the industry in which it operatesvthe reasons corporate governance risk is important and how it can be mitigatedvkey financial ratiosvthe relations
3、hip between corporate bond credit analysis and common stock analysisOverview of Bond Credit Analysisv In the analysis of the default risk of a corporate bond issuer and specific bond issues, there are three areas that are analyzed by bond credit analysts.v These three areas are:1. the protections af
4、forded to bondholders that are provided by covenants limiting managements discretion2. the collateral available for the bondholder should the issuer fail to make the required payments3. the ability of an issuer to make the contractual payments to bondholdersOverview of Bond Credit Analysis (continue
5、d)v Analysis of CovenantsAn analysis of the indenture is part of a credit review of a corporations bond issue.The indenture provisions establish rules for several important areas of operation for corporate management.These provisions are safeguards for the bondholder.Indenture provisions should be a
6、nalyzed carefully.There are two general types of covenants.i.Affirmative covenants call upon the corporation to make promises to do certain things.ii.Negative covenants, also called restrictive covenants, require that the borrower not take certain actions.There are an infinite variety of restriction
7、s that can be placed on borrowers in the form of negative covenants.Overview of Bond Credit Analysis (continued)vAnalysis of Covenants Some of the more common restrictive covenants include various limitations on the companys ability to incur debt. Bondholders may want to include limits on the absolu
8、te dollar amount of debt that may be outstanding or may require some type of fixed charge coverage ratio test. The two most common tests are the maintenance test and the debt incurrence test. The maintenance test requires the borrowers ratio of earnings available for interest or fixed charges to be
9、at least a certain minimum figure on each required reporting date (such as quarterly or annually) for a certain preceding period.Overview of Bond Credit Analysis (continued)vAnalysis of Covenants The debt incurrence test only comes into play when the company wishes to do additional borrowing. In ord
10、er to take on additional debt, the required interest or fixed charge coverage figure adjusted for the new debt must be at a certain minimum level for the required period prior to the financing. Debt incurrence tests are generally considered less stringent than maintenance provisions. There could als
11、o be cash flow tests (or cash flow requirements) and working capital maintenance provisions.Overview of Bond Credit Analysis (continued)vAnalysis of Covenants Some indentures may prohibit subsidiaries from borrowing from all other companies except the parent. Restricted subsidiaries are those consid
12、ered to be consolidated for financial test purposes; unrestricted subsidiaries (often foreign and certain special-purpose companies) are those excluded from the covenants governing the parent. Often, subsidiaries are classified as unrestricted in order to allow them to finance themselves through out
13、side sources of funds.Overview of Bond Credit Analysis (continued)vAnalysis of Collateral A corporate debt obligation can be secured or unsecured. In the case of the liquidation of a corporation, proceeds from a bankruptcy are distributed to creditors based on the absolute priority rule. What is typ
14、ically observed is that the corporations unsecured creditors may receive distributions for the entire amount of their claim and common stockholders may receive some distribution, while secured creditors may receive only a portion of their claim. The claim position of a secured creditor is important
15、in terms of the negotiation process.Overview of Bond Credit Analysis (continued)vAssessing an Issuers Ability to Pay The ability of an issuer to generate cash flow goes considerably beyond the calculation and analysis of a myriad of financial ratios and cash flow measures that can be used as a basic
16、 assessment of a companys financial risk. An evaluation of an issuers ability to pay involves analysis ofi. business riskii. corporate governance riskiii.financial riskAnalysis of Business Riskv Business risk is defined as the risk associated with operating cash flows.v Operating cash flows are not
17、certain because the revenues and the expenditures comprising the cash flows are uncertain.v An analysis of industry trends is important because it is only within the context of an industry that company analysis is valid. Industry consideration should be considered in a global context.v The need for
18、many companies to become globally competitive increases as the barriers to international trade are broken down.Analysis of Business Risk (continued)v It has been suggested that the following areas will provide a credit analyst with a sufficient framework to properly interpret a companys economic pro
19、spects:1.economic cyclicality2.growth prospects3.research and development petition5.sources of supply6.degree of regulation7.laborv These general areas encompass most of the areas that the rating agencies have identified for assessing business risk.Analysis of Business Risk (continued)v One of the f
20、irst areas of analysis is investigating how closely the industry follows gross domestic product (GDP) growth.v This is done in order to understand the industrys economic cyclicality.v Related to the analysis of economic cyclicality are the growth prospects of the industry.v This requires an analysis
21、 as to whether the industrys growth is projected to increase and thereafter be maintained at a high level or is it expected to decline.v To assess the growth prospects, a credit analyst will have to investigate the dependence on research and development (R&D) expenditures for maintaining or expandin
22、g the companys market position.Analysis of Business Risk (continued)v Competition is based on a variety of factors and depends on the nature of the industry.v The basis for competition determines which factors are analyzed for a given company.v With respect to pricing, the credit analyst will look a
23、t the market structure of an industry (e.g., unregulated monopoly, oligopoly, etc.) because of its implications on pricing flexibility.v Moreover, market structure is important if it bears on one of the other industry factors: sources of supply.v With respect to regulation, the focus should be on th
24、e direction of regulation and its potential impact on the current and prospective profitability of the company.Analysis of Business Risk (continued)v With respect to its analysis of a companys global risk, there is a particular risk to the company that the government may change the rules through suc
25、h items as1.import/export restrictions2.direct intervention in service quality or levels3.redefining boundaries of competition4.altering existing barriers to entry5.changing subsidies6.changing antitrust legislation7.changing the percentage of foreign ownership participation8.changing terms to conce
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