Corporate Issuer Credit Ratings
[vsw id=”zSl9z7qQB00″ source=”youtube” width=”611″ height=”344″ autoplay=”no”] The major credit-rating agencies, Moody’s, Standard & Poor’s (S&P), and Fitch Ratings (“Fitch”), play an essential role in the credit markets. For a majority of bonds, at least two of the agencies provide ratings….
Risks in Relying on Ratings from Credit Rating Agencies
[vsw id=”zSl9z7qQB00″ source=”youtube” width=”611″ height=”344″ autoplay=”no”] Investors overwhelmingly believe that credit rating agencies do a good job assessing credit risk. In fact, with a few exceptions (e.g., too high ratings on US subprime mortgage-backed securities issued in the mid-2000s that…
Capacity, Collateral, Covenants, and Character
[vsw id=”zSl9z7qQB00″ source=”youtube” width=”611″ height=”344″ autoplay=”no”] Traditionally, many analysts evaluated creditworthiness based on what is called the “Four Cs of credit analysis”. Capacity Capacity is the ability of a borrower to service their debt. To be determined, an industry analysis…
Financial Ratios Used in Credit Analysis
[vsw id=”zSl9z7qQB00″ source=”youtube” width=”611″ height=”344″ autoplay=”no”] Key credit analysis measures fall into 4 different groups: Profitability and Cash Flows It is from operating cash flows that companies can service their debt payments. The operating income can be obtained by subtracting…
The Credit Quality of a Corporate Bond Issuer
[vsw id=”zSl9z7qQB00″ source=”youtube” width=”611″ height=”344″ autoplay=”no”] To illustrate how to evaluate the credit quality of a corporation, we will look at CVS, a US-based healthcare company. You will be in the shoes of a banker that needs to assess the…
Factors That Influence the Level and Volatility of Yield Spreads
[vsw id=”zSl9z7qQB00″ source=”youtube” width=”611″ height=”344″ autoplay=”no”] As we saw previously, the yield on a government bond (the benchmark) is: $$\text{Goverment bond yield = Real risk-free interest rate + Expected inflation rate + Maturity premium}$$ To this benchmark yield, we need…
Credit of High Yield, Sovereign, and Non-sovereign Government Debt
[vsw id=”zSl9z7qQB00″ source=”youtube” width=”611″ height=”344″ autoplay=”no”] Special considerations are important when evaluating the creditworthiness of debt issuers in 3 market segments: high-yield corporate bonds, sovereign bonds, and non-sovereign government bonds. High-yield (non-investment-grade or “junk”) corporate bonds are those rated below…
NPV Vs IRR
[vsw id=”lYpi92G13U4″ source=”youtube” width=”611″ height=”344″ autoplay=”no”] The net present value (NPV) and the internal rate of return (IRR) are techniques that can both be used by financial institutions or individuals when making major investment decisions. Each method has its own…
