Fundamentals of Credit Analysis
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Question 1 of 8
1. Question
Credit Risk
A high yield bond has a default risk of 12%, and the recovery rate if that occurs is 30%.
What is the expected loss of the bond?
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Question 2 of 8
2. Question
Capital Structure, Seniority Ranking and Recovery Rates
Rank the following from the highest yield to the lowest given that they are from the same issuer, same time to maturity, and have no embedded options. (Drag and drop)
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First Lien
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Junior Secured
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Senior Unsecured
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Subordinated
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Senior Subordinated
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Question 3 of 8
3. Question
Credit Ratings and Ratings Agencies
Piston Corp has issued the following bonds:
Senior Secured Bond (Rating: BBB+)
Junior Secured Bond (Rating: BB-)
Senior Unsecured Bond (Rating B-)
Unsecured Bond (Rating: CC)What is the most likely corporate family rating of Piston Corp?
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Question 4 of 8
4. Question
Corporate Credit Analysis (Ratios)
Given that the total debt of the company is $100,000, calculate the FFO-to-Total Debt ratio of the company.
FFO is defined as Net Income (from continuing ops) + Depreciation & Amortisation + Other Non-cash Items
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Question 5 of 8
5. Question
Corporate Credit Analysis (Ratios)
Calculate the EBITDA-to-Interest expense ratio of the company.
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Question 6 of 8
6. Question
Credit Yields and Spreads
Which of the following scenarios will most like cause yield spreads to narrow?
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Question 7 of 8
7. Question
Special Considerations of High Yield Credit Analysis
Rank in order from strongest to weakest source of liquidity for a high yield bond issuer. (Drag and drop)
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Asset sales
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Bank credit
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Equity issuance
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Operating cash flow (CFO)
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Cash on balance sheet
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Working capital
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Question 8 of 8
8. Question
Special Considerations of Sovereign and Non-Sovereign Credit Analysis
Rank in terms of credit quality the following sovereign and non-sovereign bonds from the same country. (Drag and drop)
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Sovereign debt (in foreign currency)
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Revenue bonds
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Sovereign debt (in local currency)
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General obligations municipal bonds
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