Cash and Credit Analysis Diagnostic Tools for (potentially) Stressed Companies

According to a survey of members of the European Bankers Association the number 1 reason for companies filing bankruptcy is because they run out of cash (decline in profitability, loss of market share, etc, may be key business failings, but they do not determine if a company survives to fight another day, it is cash that is the trigger). In this class, we focus on understanding a company’s cash generation and needs, through operating factors such as OWC and Capex, and capital issues such as dividends and debt repayment. We also look at the general credit health of the enterprise through key ratio analysis. We explore complex companies and conglomerates and the group’s ability to up-/down-stream cash/assets across subsidiaries, associates and joint ventures. We look at debt structure and repayment and discuss which companies are more likely than others to be able to successfully refinance their debt, looking into debt documentation, debt sources, creditor relationship, all from a practical perspective. We end the session looking to credit prices, including bond spreads and credit default swap prices, their sources, reliability (in the face of illiquidity) and what they might reveal about the market’s perception of the company. The class is structured around 2 real case studies. This class is useful to bankers who need to understand credit analysis without ‘becoming’ credit analysts.