Course Objectives
The workshop focuses on using a structured approach to the analysis enabling participants to be efficient, thorough and conclusive in their analysis, and prepared to discuss confidently the robustness of a client's business model and identify any credit concerns.
The aim is to equip participants with the knowledge and skills to proactively:
- Apply a structured approach to identify, quantify and evaluate credit, market and country risks in commodity trade transactions
- Distinguish the risks in different types of credit exposure
- Focus on the financial and ratio analysis in order to assess the performance and financial health of a commodity trader
- Utilise qualitative, quantitative and market indicators which could be early warning signals of problems
- Recommend facility amounts and structures which are appropriate to the risk profile of the client and protect sufficiently the interests of the bank
Target Audience
Corporate bankers and analysts, credit, risk and portfolio managers and other finance professionals working in credit risk management and credit products who are doing business with or taking exposure against commodity companies.
Content
ANALYTIC FRAMEWORK
The aim of this section is to introduce and reinforce a 4-step analytic framework for credit assessment of a commodity company: purpose,payback, risks and structure.
Purpose
- Identifying user of the funds: pure trader, integrated trader, manufacturer, finance or holding company
- Identify which stage of the business cycle is being financed.
Payback
- Four sources of payback in all credit transactions: assets, refinance, cash flow and external support
- Prioritising analytic focus according to sources of payback.
Risks
- Evaluating the risks to repayment: analysis of the external environment, the sector, and of the company specifically.
Structure
- Debt profile, ranking, and safeguards
- Exercise: example of different purposes and payback sources.
RISK ANALYSIS: OVERVIEW OF MACRO AND MARKET RISKS
The aim of this section is to focus on how country risk and specific commodities sector risks may impactrepayment capacity.
Country risk
- Impact of country risk on international trade, key risk features of emerging markets compared with mature markets.
Sector risk
- Key sector drivers, growth and profit dynamics
- Exercise: Critical success factors for traders
- Commodity risks: price volatility, demand, quality, logistics.
RISK ANALYSIS: BUSINESS RISK
The aim of this section is to review and assess the key business risks likely to impact a commodity trader.
Business cycle challenges
- Understanding a company's operations using the business cycle model: sourcing, transporting and warehousing of goods
- Exercise: link between business cycle and accounting
- Balance sheet and income statement performance
- Exercise: Creating expectations about balance sheet and profits
- Bargaining positions: understand dynamics of suppliers and buyers.
Key drivers of earnings
- Key drivers of earnings: quality and stability of sales, profits and cash flow
- Quantifying performance: applying and benchmarking key ratio and cash flow performance measures.
RISK ANALYSIS: FINANCIAL RISK
The aim of this section is to evaluate the liquidity of a trader and determine an appropriate level of financial risk.
Financial strategy
- Using business risk to gauge an appropriate level of financial risk
- Understanding a company's funding strategy: shareholder considerations and ratings implications
- Corporate treasury objectives: tenor matching, funding and liquidity needs
- Risk management and use of derivatives
- Credit strength and impact on access to markets.
Financial flexibility and liquidity
- Measuring liquidity: uses and limitations of traditional working capital measures
- Determining payment readiness and ability to meet short term funding requirements
- Ratio and cash flow tools
- Exercise: evaluate liquidity of a trader.
Solvency
- Defining, measuring and evaluating solvency for a trader
- Exercise: assessing solvency of a trader and a processor
- Early warning signals of financial distress.
RISK ANALYSIS: overview of MANAGEMENT AND SHAREHOLDERS
The aim of this section is to reviewmanagement and shareholder issues specific to commodity traders.
Management
- Structured approach to analysis: strategy, systems, skills and structure of management specific to traders
- Exercise: Identify management risks.
Shareholders
- Impact of organisational structure on credit risk.
- Exercise: impact of group structure on credit risk.
- Evaluating influence, control, and potential support.
STRUCTURING FEATURES
The aim of this section is to review how to determine exposure profile and set safeguards to protect lenders' interests.
Debt profile
- Tenor and amount of exposure, drawdown limits
- Exercise: structure tenor and amount of lines.
Ranking
- Different ways to achieve seniority / pari passu ranking; perfecting security interests.
Safeguards
- Collateralised versus clean transactions
- Setting lending margins / haircuts and thresholds, LTV, top up clauses
- Exercise: structuring features to mitigate risks.
Pricing
- Risk and return considerations
ILLUSTRATION CASE STUDY
All aspects of the analytic framework will be applied to a main illustration case study throughout the workshop. Participants will use the analytic tools to conclude on the credit worthiness of the company, benchmark performance to peers, identify the credit concerns and recommend an appropriate level and structure of exposure.
Workshop Times
Below are typical timings for our courses; upon registration we shall advise you if these have changed.
Breakfast: 8.30am
Course Start: 9.00am
Course End: Between 5.00pm and 5.30pm
Lunch starts between 12.30pm and 1.00pm, and lasts no longer than 1 hour.
Short breaks of 10 - 15 minutes are taken mid morning and mid afternoon.