Identifying and Mitigating Repayment Risks
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In this 7th course of the Commercial & Industrial Business Underwriting Skill Series, participants will identify financial and non-financial repayment risks, evaluate borrower and lender-imposed mitigants, assess the financing gap ratio for controlling cash outflows, and explore the benefits and limitations of well-constructed covenants.
Certificate
1 credit or $295
Cost
1.5 - 2 Hrs.
Duration
1 hr.
Prep Time
1
Quiz
Overview
In the seventh session, participants identify relevant financial and non-financial risks to the primary, secondary, and tertiary cash sources of repayment. They examine a range of possible risk mitigants from possible self-regulating risk mitigants implemented by the borrower to mitigants imposed by the lender in the form of debt service covenants and associated limitations on cash outflows. They explore and assess the value of the financing gap ratio designed to control cash outflows from movements in operating balance sheet accounts such as receivables, inventory, payables, and accruals. In addition, participants address the benefits and limitations of covenants if properly constructed and monitored.
Who Should Take This Course
This Course is ideal for participants currently in or aspiring to enter the following job functions:
- Credit Management
- Commercial Credit Administration
- Commercial Loan Portfolio Management
- C & I Lending
- Loan Review
- Special Assets
- Credit Analysis
Prerequisites
Some familiarity with an accrual income statement and balance sheet for a commercial business, as well as completion of prior sessions in the Credit College.
Objectives
By the end of the webinar session, participants will be able to:
- Identify the critical issues that must be addressed in the use and application of loan covenants.
- Identify the key elements and considerations that determine loan structure.
- Compute and apply the Business Profit Coverage ratio designed to assure sufficient business profit to service interest-bearing debt.
- Compute and apply the Financing Gap ratio designed to limit cash outflow from movements in operating asset and liability accounts on the balance sheet.
- Identify all relevant risks to cash sources of repayment for two specific borrowers in different business activities with different loan requests.
- Structure and apply loan covenants to mitigate some or all risks to the cash sources of repayment for two specific borrowers.
Materials(access provided with registration)
- Credit Refresher on Covenants and the First Way Out
- Financial Statements for Sacramento Distributors, Inc.
- Financial Statements for Total Coverage, Inc.
- Exercise for the Session 7 Webinar
- Webinar Presentation Slides
- Webinar Poll Questions
- Webinar Poll Solutions
- Exercise Solutions
This is Course 7 of 8 in the Commercial & Industrial Business Underwriting Skill Series
Analytical Decision Tree and the Credit Write-Up
Financial Statement Review and Ratio Analysis
Cash Flow Analysis and Borrowing Causes
Projected Cash Flow, Management Assessment and the First Way Out
Guarantor Analysis and the Second Way Out
Non-Financial Red Flags and Performance Implications
Identifying and Mitigating Repayment Risks
The Credit Write-Up Again
