I’ve been asked to do a preliminary credit analysis on a public company. Anyone have any pointers on first/most important steps? I’ve never done one, but this fell in my lap because I’m the guy who’s in the CFA program, which means I must know how to do one. I know, kind of embarrassing that I don’t know where to begin… Thanks!
when is it due? There must be tons of credit analysis books in the amazon or e-books. I think if you order now, you’ll get it tomorrow and finish the project over the weekend. But very briefly, I’d start with reading most recent quarterly/annual reports, also take a look at the past reports if anything has changed significantly, do a lot of number crunching; ratio analysis, comparables. You’ll have to build a cash flow model. No need to mention the basic industry analysis. It’s a lot of work. good luck
Thanks for the info. This is for a sale-leaseback deal on the company’s real estate holdings so I just need to handicap whether or not they’ll pay their rent. I’m thinking of looking at their debt ratios, liquidity, DSCR, and upcoming debt maturities. Anything else important I’m missing? They look pretty shaky so I’ll probably have to do some industry analysis to see if any competitors will take down any excess capacity they give back. Where can i get info on the competition? We’re a real estate company so we don’t have any research services on public companies. Yahoo Finance?
See if they have any lines of credit available.
good thought, thx.
People are always impressed when you look at their cash flow. DSCR is a good one you’ve already identified. Will you have the ability to get your hands on any ratings agency analyses? Despite their (now obvious?) shortcomings their reports often can give you some insight that you can use. Can you get pricing history (spread to TSYs or SWAPS) for their debt issues? This could help identify whether the marketplace thinks the company debt is getting riskier. Hardly a comprehensive framework for a credit report, but just a few points to hit.
plyon-- great suggestions. Yield history would be great, but we don’t have a bloomberg terminal. maybe i can call in a favor. We’re not spending any money yet on DD for this deal, so I probably won’t be able to get my hands on any reports. But I have their debt rating from the 10-K —> CCC…ouch. I’m amazed at how many small real estate companies like mine survive without a data/research platform.
I suggest finding some reseach reports on the firm and use those (with appropiate attribution). No way you can learn credit analysis in a week or so.
BB-- I agree, but for now I’m just doing some preliminary digging to see if we want to start spending money on DD for this deal. If we move forward we’d definitely use an outside tenant analysis. Right now just looking for big red flags – CCC rating probably changes things.
Given the company’s ratings, you have to consider 2 things: (1) how likely is it that this particular company can tap either public or private capital markets? I can think of a few examples of companies that, while having junk ratings, have a cult following on the buy-side that might be willing to provide capital. (2) you have to consider how integral the real estate [in question] is to the overall business. The last thing you want is to be holding the bag on buildings that have a limited role in the company as those leases are most likely to be rejected in a bankruptcy.
Also, if you don’t have a BB terminal you can still find TRACE prints for any public debt securities here: http://cxa.marketwatch.com/finra/BondCenter/Default.aspx They don’t track spreads but shouldn’t matter very much for CCC
good link. appreciate it.