Investment Decision with Credit Analysis
Autor: Anjali Singh • November 2, 2015 • Course Note • 847 Words (4 Pages) • 1,003 Views
Investment Decision with Credit Analysis - Credit Rating – Decision
(Including off balance sheet and the proposed acquisition)
You are with Synergy AMC in the fixed income department .You are considering buying the company corporate bond. You have collected balance sheet and income statement information.
You have decided to consider some off-balance sheet items as well the impact of prospective acquisition in your credit analysis. You also would like to look at the overall health of the company, historically.
Your company also have a policy also has decided that you would not like to have a Z Spread of more than 300 bp for a particular bond. (two bond can be used for the analysis)
Select Indian Company.
Compute the existing following ratios and find the existing rating.
Calculate the combined effect of the three items on each of the following financial ratios, based on the last five years data. (See the change in rating, if any)
- EBITDA/Interest expense
- Long-term debt/equity
- Current assets/Current liabilities
- Operating cash flow to Debt
The bond is currently trading at a credit premium of 55 bp or the comparable. Has the off balance sheet items been already incorporated?
Off-Balance Sheet Items
Sold a medium to long term asset for $1500,000 with recourse at a yield of 8%.
Guaranteed the long-term debt (principal only) of an unconsolidated affiliate. This obligation has a present value of $995000.
MTC is a lessee in a new non cancelable operating leasing agreement to finance transmission equipment. The value of lease payments is $6,144,000 with an interest rate of 10%. The annual payment will be $1000000.
Impact on Acquisition
The company is planning to acquire another firm with an overall cost of 40% of its current reserves and surplus.
The company may not pay any cash dividend or repurchase shares if such payment would result in a debt to capital in excess of 70%.
If the company’s debt rating falls below A, the bond holders have the right to redeem the bond at a price of Rs.105 following the change in rating.
What is the impact of the above two on the acquisition?
ABC Investments: Internal Bond-Rating Criteria and Credit Yield Premium Data
Bond Rating Int Coverage Leverage Current Ratio Current Yield Premium
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