Credit Risk Analysis Professional Certificate (CRAPC)
In-Person: NY Wall Street Campus
Duration: 5 Days (Full-time)
Teaching Mode : Live Instructor Classes
Virtual Live
Duration: 5 Days (Full-time)
Teaching Mode :Live Virtual Sessions
Self-Paced Online
Duration: 40 hours (Learn at your pace)
Teaching Mode : Recorded Sessions + Q&A with Faculty
Introduction to Risk Management and Credit Principles
Types of Risk
Financial institutions face market risk from changes in interest rates and asset prices, credit risk from borrower defaults, and operational risk from failures in systems, processes, or people. These risks often reinforce one another during periods of financial stress.
Why Risk Management : Risk management enables institutions to anticipate potential losses, protect capital, and make informed lending decisions, particularly during economic downturns.
Expected Loss (EL)
Definition: Expected Loss represents the average credit loss a lender expects over time and is used for loan pricing, provisioning, and capital planning.
Expected Loss (EL) = Probability of Default × Exposure at Default × Loss Given Default
Example: A $10 million loan has a 2% probability of default (PD), and if default occurs, the lender expects to lose 60% of the exposure (LGD).
Interpretation: On average, the lender expects to lose $0.12 million ($120,000) on this loan.
Principles of Corporate and Project Finance
Corporate Finance Lending :Corporate lending relies on the overall financial strength of the borrower, with repayment supported by total business cash flows and the company’s balance sheet.
Project Finance Lending : Project finance relies only on cash flows generated by a specific project, making forecasting accuracy and contractual risk allocation critical.
Example :A loan to a manufacturing company is repaid from company-wide earnings, whereas a toll road project loan is repaid only from toll revenues generated by that project.
Credit Markets, Loan Defaults, and Expected Loss
Credit Markets : Credit markets transfer capital from lenders to borrowers through loans and bonds in exchange for interest income and credit risk.
Loan Default : A loan default occurs when a borrower’s cash flows are insufficient to meet scheduled interest or principal payments.
Expected Loss Drivers : Credit losses are driven by
- Probability of Default
- Exposure at Default
- Loss Given Default
Business, Industry, and Company Risk
Industry Risk : Cyclicality, competitive intensity, and regulation influence performance.
Business Risk : Revenue volatility and high fixed costs increase vulnerability during downturns.
Company Risk : Strong governance, diversification, and competitive positioning can offset external pressures.
Ratings Agencies and Financial Disclosure
Role of Ratings : Credit ratings provide a standardized assessment of relative default risk and influence borrowing costs.
Key Limitation : Ratings are opinions, not guarantees, and should not replace independent credit analysis.
Financial Ratios, Metrics, and Analysis
Measures how comfortably a company can meet interest obligations using operating earnings.
Example : A company generates $50 million in EBIT and has $10 million in annual interest expense.
Interpretation : The company earns five times its interest expense, indicating strong debt-servicing capacity.
Off-Balance-Sheet Risks
Nature of Risk : Guarantees, leases, and derivatives may create obligations not fully visible on the balance sheet.
Credit Impact : Such exposures can cause the Balance Sheet to materially understate leverage and risk.
Organization Structures
Debt issued at a holding-company level depends on cash distributions from operating subsidiaries.
Debt is repaid with cash, not accounting profits
Volatile cash flows materially increase default risk.
Project Finance Cash Flow Analysis
Project cash flows are distributed in a fixed priority order: operating costs, debt service, then equity.
Debt Service Coverage Ratio (DSCR)
Measures the margin of safety available to meet debt obligations.
Example :A project generates $120 million of cash available for debt service and has $100 million of annual debt service.
Interpretation : The project generates 20% more cash than required to meet debt obligations.
Forecasting and Projections
Evaluates debt-servicing capacity under different operating assumptions.
Example :Base Case: A company generates $80 million in EBITDA and has $60 million in debt service.
Example :Base Case: A company generates $80 million in EBITDA and has $60 million in debt service.
Interpretation : The downside case shows limited buffer and potential covenant stress.
Capital Structure
Capital structure determines payment priority and loss absorption in default.
Debt Capacity
Debt capacity represents the maximum sustainable debt level without a high probability of financial distress.
Example :A company generates $40 million in EBITDA, and lenders allow a target leverage of 3.0 times EBITDA
Interpretation :Estimated sustainable debt capacity is $120 million.
Structuring New Debt and Facilities
Leverage Covenant : Maximum EBITDA/Debt Service Ratio
Example :Example: A borrower has $140 million in total debt and $38 million in EBITD
Interpretation : The leverage covenant limit of 3.0 times is breached, triggering lender protections.
Credit Structuring – Decision Framework
Credit structuring defines loan size, duration, controls, and pricing based on credit analysis and risk considerations.
Credit Structuring Decision Table
Example: Borrower with stable but cyclical cash flows requesting new debt.
