enhancing expertise
Credit Training

We offer customized on-site credit training covering the topics listed below. These topics implicitly cover frameworks such as the Five C's credit, the Seven C's of Credit, CAMPARI, and Five P's of credit that are sometimes used by credit analysts.

Analysis of Financing Needs and Credit Risks

We start credit training with an analysis of borrower's financing needs, its legal entities, their business risk, and their financial risk including levels and structure of debt and access to liquidity.

Financing needs analysis

  • Understanding why the borrower needs external financing: growth, refinancing, distress, seasonality
  • Understanding the key drivers of a borrowers's cash flows: size, growth, margins, assets needed, liabilities available
  • Preparing a cash flow waterfall from net income, funds from operations (FFO), operating cash flow, free cash flow, cash available for repayment of debt principal

Legal entity analysis

  • Understanding why legal entity analysis matters
  • Guarantor versus non-guarantor subsidiaries
  • Structural subordination

Business risk analysis

  • Customers
  • Competitors
  • Nature of business and industry
  • Suppliers
  • Employees
  • Senior managers
  • Other risk factors such as regulation, litigation, country, currency, and sovereign

Financial risk analysis: Debt

  • Link between financial and operating leverage
  • Risks due to level of debt: Debt/EBITDA, Debt/EBIT, EBTIDA/Interest expense (interest coverage), and Debt/Equity ratios
  • Risks due to structure of debt: Tenor or maturity, currency, interest rate (fixed vs. floating), commodity linked
  • Quality of collateral if any
  • Covenants
  • Hedging and derivatives

Financial risk analysis: Liquidity

  • What is liquidity
  • Sources of liquidity
  • Costs and benefits of liquidity
  • Liquidity for expansion versus liquidity under stress
  • Liquidity metrics: Liquid assets/sales, current ratio, working capital, and quick ratio

Lending rationale and ways out analysis

In this step, we examine the underlying lending rationale and the way in which lenders could be repaid under various distress scenarios.

Primary cash flows: Cash-flow based lending vs. asset-based lending

  • Overall cash flows from the business: Cash-flow based lending
  • Cash flows from specific assets: Asset-based lending

Secondary sources of cash flows

  • Using up sources of liquidity
  • Sale of collateral

Tertiary sources of cash flows

  • Guarantees by third parties: Depending on the legal terms of the guarantees, these could yield cash flows before the cash flows received from sale of collateral
  • Insurance coverage for specific assets or business interruption
  • Hedges of commodity, currency, and interest rate risks
  • Credit default swaps

Ways out analysis

  • Ways out under normal circumstances: Amortization, refinancing, resale or syndication
  • Ways out under adverse circumstances: Sale of assets, Winding down of operations to reduce the size of the balance sheet, Credit default swaps, Guarantees

Projections and enterprise valuation

We then cover cash flow projections, downside scenario analysis, and enterprise valuation. We also highlight how the credit-risk scenarios differ from equity-valuation scenarios.

Building the base case

  • Operating working capital
  • Non-current assets and non-current liabilities other than PP&E
  • PP&E, Depreciation, and Capex
  • Tax rates
  • Interest and principal payments
  • Planned dividend payments

Scenario analysis

  • Understanding how the business risks, financial risks, and liquidity risks connect with the inputs to the model
  • Equity mind-set versus credit mind-set: Downside risk and distress modeling

Enterprise valuation

  • Understanding how the debt/enterprise value ratio is used in credit analysis
  • Multiples-based relative valuation versus DCF-based intrinsic valuation
  • Weighted-average cost of capital computations
  • Terminal growth rates and terminal values

Debt Sizing or Borrowing Capacity

After developing cash flow projections, one can assess borrowing capacity and the size of the loan that can be extended. Debt sizing and debt structuring decisions are jointly made. Debt structuring is explained after debt sizing.

Asset-based lending

  • Appraising collateral
  • Amount and quality of collateral
  • Guarding collateral

Cash-flow-based lending

  • Sustainable cash flows
  • Refinancing risks

Debt Structuring

Debt structure depends upon the nature of the business, the ways out, and the cash flow drivers.


  • Tenor and amortization: The duration and pattern of loan repayments
  • Interest rate: Level of interest rate and whether it is fixed or floating; whether the periodic payments are in cash or kind or toggled.
  • Seniority or priority: How will the debt be ranked in terms of priority of payments in a bankruptcy
  • Security: Which assets will provide alternate source of cash flows in case the primary sources of cash flows fall short of expectations?
  • Borrowing base: Will the debt level be tied to levels of specific assets?
  • Covenants: Conditions that a borrower must meet
  • Currency: Which currency will the interest and principal be repaid?
  • Convertibility to equity: Will the debt be convertible to equity?
  • Call and put options: Will the borrower have the right to prepay? Will the lender have to right to ask for early payment?


  • Positive versus negative covenants
  • Incurrence versus maintenance covenants

Debt Instruments, Institutions, and Markets

After developing cash flow projections, one can assess borrowing capacity and the size of the loan that can be extended. Debt sizing and debt structuring decisions are jointly made. Debt structuring is explained after debt sizing.

Debt Types and Instruments

  • Public debt versus private debt
  • Bridge loans
  • Revolvers; Asset-backed loan facilities
  • Term loans: A , B, and C
  • Subordinated bonds
  • Convertible debt
  • PIK bonds

Debt Institutions and Markets

  • Commercial banking versus investment banking: Holding a loan versus enabling the issue of loans
  • Syndication
  • Securitization