Advanced Corporate Credit - Warning Signals

Macro-economic forces and concerns surrounding current issues. Sector issues: Sectors most vulnerable to cyclicality, macroeconomic sensitivities and structural changes. Company specific factors: Why certain companies are more vulnerable than others to credit deterioration. Symptoms of a deteriorating credit: non-financial indicators, financial indicators and market indicators. Credit ratings; credit migration. Market pricing during turbulent times: bond, CDS and share prices. Application of the four-step approach to credit to expose key early warning signals: Purpose, payback, risks and structure. Risks to repayment: current market conditions and their impact on risk. Economic cyclicality in various markets and the potential disastrous effect on company performance. Vulnerability to foreign exchange movements and the effect of sudden fluctuations. Exposure to commodity price instability and the effect on profitability and cash flow. Disruptive events that can change the outlook for the sector. Emerging market risk and issues specific to small, young economies. Lack of sufficient scale in an increasing competitive environment; weak part of the supply chain; low added value. Excessive growth with inability to finance externally; timing of expansion. Higher operating leverage; inability to transfer increased costs. Dependency on a small numbers of customers and/or suppliers. Financially impaired customers, price competition, CAPEX requirements, reliance on other sectors in distress