Course Category

Day One

Session 1: Why Credit Risk Analysis and Creating a Risk Evaluation Framework

• Who uses analysis and why
• Using credit products as a proactive marketing tool
• The importance of credit analysis
• Exercises: Creating a Risk Evaluation Framework and calculating Economic Benefit
• Identifying the true borrower – Know Your Customer
• The Patriot Act
• Identifying the true purpose of the loan
• Identifying how and when repayment will happen
• Sources of repayment
• Risks of repayment (understanding the macroeconomic environment; understanding the client’s business)

Session 2: A risk evaluation framework

• Security and Documentation
• Types of collateral
• Documentation
• Covenants
• Verifying the existence of the collateral, physical possession of the collateral
• Structure
• Pricing

Session 3: Credit products and uses

• What are typical credit products?
• What are credit products used for?
• Foreign exchange
• Margin trading
• Personal property
• Investment property
• Leveraging existing investments

Session 4: Analyzing Personal Financial Statements

• Statement of Financial Position
• Assets – estimated fair value
• Statement of changes in net worth
• The difference between net worth and cash
• The effect of leverage
• How to calculate liquid and adjusted net worth
• Estimating future cash flows
• Warning signs/creative accounting

Day Two

Session 1a - Lending against marketable securities

• Purpose
• Borrower
• Repayment & Risks
• Primary source: personal cashflows (portfolio income vs interest expense, cashflow generation from other sources)
• Secondary source: value of other investments (net worth), ability to liquidate, impact on relationship
• Security
• Publicly traded shares
• What exchange
• Percentage of ownership
• Float
• Stock price and volatility
• Currency and country risk
• Marking to market
• The importance of diversification - Enron
• Lending against Bonds
• Publicly traded bonds
• Bond types
• The effects of interest rate movements
• Are ratings from Moody's and S&P enough?
• Giving appropriate haircuts

Session 1b - Lending against marketable securities

• Marking to market
• Lending against cash – structural issues

Session 2: Lending against hedge funds

• Definition of a hedge fund
• Hedge fund styles - where are the risks?
• Exercise: Determine expected volatility with different fund styles
• Due diligence on the fund
• Where to find non-public information
• Reviewing recent hedge fund debacles
• The emergence of the SEC
• Peter Chabot from Mississippi
• David Mobley from Florida
• A word on LTCM - When Genius Failed

Session 3: Lending to privately owned operating companies

• Purpose
• Borrower
• Repayment & Risks
• Primary and secondary sources: cashflows vs income (analysis of corporate cash flow statements, profit and loss statements)
• Corporate balance sheet: current and fixed assets, current and long term liabilities, equity, assessing the true value of the assets and liabilities
• Exercise: Balance sheet recognition
• Macro-economic and industry dynamics, understanding the business, liquidity
• Analyzing country risk
• Exercise: Calculating cash flows
• Quality of accounts, transparency, timeliness and disclosure
• Assessing management and shareholders, including assessing shareholder support
• Security
• UCC filings, personal guarantees, corporate guarantees (importance of ‘economic benefit’)
• Structure
• Repayment terms
• Ranking/subordination
• Covenants

Session 4: Lending against property

• Purpose: Personal property loans, Commercial property loans
• Borrower
• Repayment & Risks
• Primary source: rental cashflow/interest cover (project feasibility), cashflow generation from other sources
• Secondary source: value of other investments (net worth), ability to liquidate, impact on relationship
• Security
• Understanding the cycle
• The appraisal - which one is right?
• Cost
• Income
• Market
• Risks in collectability
• Structure (tenor, currency, loan to value)