Credit Analysis for Corporate Issuers

How a credit analyst judges a non-financial company's ability to repay: the qualitative picture (business model, industry, business risk, governance and covenants), the quantitative factors and the profitability, coverage and leverage ratios that measure them, and how seniority, collateral and the priority of claims drive recovery, issue ratings and notching.

1. 1. Qualitative factors: business, industry and governanceBefore any ratio is calculated, a credit analyst asks whether the business model, industry, business risks and management make the timing and size of future cash flows reliable enough to meet each debt payment.Free13 min
2. 2. Quantitative factors: the four things to measureQuantitative credit analysis forecasts a company's financial statements to measure four drivers of default risk: profitability, leverage, coverage and liquidity.11 min
3. 3. Calculating credit ratiosCredit ratios turn the financial statements into a handful of numbers on profitability, coverage and leverage, built mostly from operating earnings and conservative cash flow measures.Video · 6 min15 min
4. 4. Interpreting ratios: trends, peers and covenantsA ratio means little alone: credit analysts read it against its own trend, against industry and rating peers, and against covenant thresholds to judge where credit quality is heading.13 min
5. 5. Seniority, priority of claims and recoveryWhere a claim ranks in the priority of claims largely decides how much its holder recovers in default: secured debt first, then senior unsecured, then subordinated debt, then shareholders.Video · 7 min15 min
6. 6. Issuer versus issue ratings and notchingAn issuer rating reflects the company's overall creditworthiness through its senior unsecured debt, while each issue rating is notched up or down from it to reflect that issue's seniority and expected loss given default.12 min