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Credit Analysis for Corporate Issuers

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Topic 16: Credit Analysis for Corporate Issuers

Learning Objectives Coverage

LO1: Describe the qualitative and quantitative factors used to evaluate a corporate borrower’s creditworthiness

Core Concept exam-focus credit-analysis

Corporate credit analysis evaluates a company’s ability and willingness to meet its debt obligations through systematic assessment of business, financial, and industry factors. It combines qualitative judgment about business sustainability with quantitative measurement of financial capacity — a richer framework than the purely formula-based expected loss approach. Corporate bonds comprise the largest segment of the credit market, and the credit spreads they trade at reflect the market’s continuous assessment of these risk factors. Understanding corporate creditworthiness is the foundation for relative value analysis, portfolio construction, and risk management across fixed-income strategies.

Formulas & Calculations

  • Business Risk Framework:

    Overall Credit Risk = Business Risk + Financial Risk

Business Risk Components:
- Industry Risk (cyclicality, competition, regulation)
- Company Position (market share, differentiation, scale)
- Operating Risk (cost structure, geographic exposure)

Financial Risk Components:
- Leverage (Debt/EBITDA, Debt/Capital)
- Coverage (EBIT/Interest, EBITDA/Interest)
- Liquidity (Current ratio, Quick ratio)

  • Qualitative Scoring Model:

    Credit Score = Σ(Weight_i × Factor_i)

Example weights:
- Industry position: 25%
- Management quality: 20%
- Financial flexibility: 30%
- Business stability: 25%

Practical Examples

  • Technology Company Assessment:

    Qualitative factors:
- Industry: High growth but disruption risk (Neutral)
- Market position: #2 player, 25% share (Positive)
- Management: New CEO, turnaround specialist (Positive)
- Business model: Transitioning to SaaS (Risk factor)

Quantitative factors:
- EBITDA margin: 35% (Strong)
- Debt/EBITDA: 2.5x (Moderate)
- Interest coverage: 8x (Strong)

Overall assessment: BBB+ (stable outlook)

  • Retail Company Comparison:

    Company A (Traditional):
- Store-based model
- Declining same-store sales
- High lease obligations
- Rating: BB (negative outlook)

Company B (Omnichannel):
- 40% online sales
- Growing market share
- Asset-light model
- Rating: BBB (stable outlook)

DeFi Application

  • Protocol example: Goldfinch protocol for uncollateralized lending to real businesses
  • Implementation: On-chain business verification, revenue stream tokenization, decentralized credit assessment
  • Advantages/Challenges:
    • Advantages: Transparent financials, automated monitoring, global access
    • Challenges: Limited operating history, regulatory uncertainty, oracle reliability

LO2: Calculate and interpret financial ratios used in credit analysis

Core Concept

  • Definition: Financial ratios quantify a company’s credit capacity by measuring profitability, leverage, coverage, and liquidity. These metrics provide objective benchmarks for comparing issuers and tracking credit quality over time.
  • Why it matters: Ratios form the foundation of credit ratings, covenant compliance, and relative value analysis. They enable standardized comparison across companies, industries, and time periods.
  • Key categories:
    • Profitability: Operating efficiency and margin stability
    • Leverage: Debt burden relative to assets or cash flow
    • Coverage: Ability to service debt from earnings/cash flow
    • Liquidity: Short-term financial flexibility

Formulas & Calculations

  • Profitability Ratios:

    EBIT Margin = Operating Income / Revenue

EBITDA Margin = (Operating Income + D&A) / Revenue

Return on Capital = EBIT(1-Tax Rate) / (Debt + Equity)

  • Coverage Ratios:

    EBIT Interest Coverage = EBIT / Interest Expense

EBITDA Interest Coverage = EBITDA / Interest Expense

Fixed Charge Coverage = (EBITDA - Capex) / (Interest + Principal)

Debt Service Coverage = FCF / (Interest + Principal + Dividends)

  • Leverage Ratios:

    Debt/EBITDA = Total Debt / EBITDA

Net Debt/EBITDA = (Debt - Cash) / EBITDA

Debt/Capital = Debt / (Debt + Equity)

RCF/Net Debt = Retained Cash Flow / Net Debt

  • Cash Flow Ratios:

    FFO = Net Income + D&A + Deferred Tax + Non-cash Items

FCF = CFO - Capex - Dividends

RCF = FFO - Dividends

Cash Conversion = FCF / EBITDA

  • HP 12C Steps (Debt/EBITDA):

    Example: Debt = $500M, EBITDA = $125M

500 [ENTER]                (Total debt)
125 [÷]                    (÷ EBITDA)
Result: 4.0x               (Debt/EBITDA ratio)

Rating implication:
<2x = A range
2-3x = BBB range
3-4x = BB range
>5x = B range

  • HP 12C Steps (Interest Coverage):

    Example: EBIT = $100M, Interest = $20M

100 [ENTER]                (EBIT)
20 [÷]                     (÷ Interest expense)
Result: 5.0x               (Interest coverage)

Covenant test (minimum 3.0x):
5.0 [ENTER] 3.0 [−]
Result: 2.0x               (Cushion above minimum)

Practical Examples

  • Manufacturing Company Analysis:

    Financial data:
- Revenue: $2,000M
- EBITDA: $400M
- EBIT: $300M
- Interest: $60M
- Debt: $1,200M
- Cash: $200M
- Capex: $100M
- Dividends: $50M

Ratio calculations:
- EBITDA margin: $400M/$2,000M = 20%
- EBIT coverage: $300M/$60M = 5.0x
- Debt/EBITDA: $1,200M/$400M = 3.0x
- Net Debt/EBITDA: $1,000M/$400M = 2.5x
- FCF: $400M - $100M - $50M = $250M
- FCF/Debt: $250M/$1,200M = 20.8%

Credit assessment: BBB (investment grade)

  • Stress Testing Example:

    Base case vs Recession scenario:

Base:
- Revenue: $1,000M
- EBITDA: $200M (20% margin)
- Interest coverage: 6x

Recession (30% revenue decline):
- Revenue: $700M
- EBITDA: $105M (15% margin)
- Interest coverage: 3.15x

Conclusion: Maintains covenant compliance in stress

DeFi Application

  • Protocol example: Credix providing credit to emerging market businesses
  • Implementation: Real-time ratio calculation from on-chain transaction data
  • Advantages/Challenges:
    • Advantages: Continuous monitoring, automatic covenant triggers, transparent metrics
    • Challenges: Data standardization, accounting manipulation detection, off-chain asset verification

LO3: Describe the seniority rankings of debt, secured versus unsecured debt and the priority of claims in bankruptcy, and their impact on credit ratings

Core Concept

  • Definition: Seniority determines the payment priority in bankruptcy, with secured debt having claims on specific assets and unsecured debt relying on general recovery. This hierarchy directly impacts recovery rates, credit spreads, and ratings.
  • Why it matters: Understanding seniority is crucial for portfolio construction, relative value analysis, and risk management. Recovery rates can vary from 90%+ for first lien debt to <30% for subordinated debt.
  • Key components:
    • Security interest (collateral vs unsecured)
    • Contractual subordination (payment priority)
    • Structural subordination (holding company vs operating company)
    • Covenant packages (protection mechanisms)

Formulas & Calculations

  • Expected Loss Calculation:

    Expected Loss = PD × LGD

Where:
LGD = 1 - Recovery Rate

Example by seniority:
First Lien: EL = 1% × (1 - 0.86) = 0.14%
Senior Unsecured: EL = 1% × (1 - 0.47) = 0.53%
Subordinated: EL = 1% × (1 - 0.28) = 0.72%

  • Recovery Rate Estimation:

    Recovery Rate = Asset Value × Priority % / Claim Amount

Waterfall example ($1B assets):
- First Lien ($300M): 100% recovery
- Senior Secured ($400M): 87.5% recovery
- Senior Unsecured ($500M): 60% recovery
- Subordinated ($200M): 0% recovery

  • Rating Notching:

    Subordinated Rating = Issuer Rating - Notches

Typical notching:
- Senior Secured: +1 to +2 notches
- Senior Unsecured: 0 notches (baseline)
- Subordinated: -1 to -2 notches
- Junior Subordinated: -2 to -3 notches

  • HP 12C Steps (Recovery Analysis):

    Example: Enterprise value = $800M, Debt structure analysis

First Lien = $200M:
200 [ENTER] 800 [÷] 100 [×]
Result: 25% (Full recovery likely)

Senior Unsecured = $400M:
800 [ENTER] 200 [-]         (Remaining after first lien)
400 [÷] 100 [×]
Result: 150% (Full recovery)

Subordinated = $300M:
800 [ENTER] 600 [-]         (After senior claims)
300 [÷] 100 [×]
Result: 66.7% recovery

Practical Examples

  • Capital Structure Analysis:

    Company X Balance Sheet:
Assets: $2,000M

Liabilities:
- Secured Term Loan: $500M (First lien on PP&E)
- Senior Notes: $700M (Unsecured)
- Subordinated Notes: $300M
- Trade Payables: $200M
- Equity: $300M

Distress scenario (40% asset value):
- Assets available: $800M
- Secured loan: 100% recovery ($500M)
- Remaining: $300M
- Senior notes: 43% recovery ($300M)
- Subordinated: 0% recovery

  • Historical Recovery Comparison:

    2020 Actual Recoveries (COVID impact):

Retail sector:
- First Lien: 65%
- Senior Unsecured: 15%
- Subordinated: 5%

Technology sector:
- First Lien: 85%
- Senior Unsecured: 55%
- Subordinated: 30%

Lesson: Industry matters for recovery

DeFi Application

  • Protocol example: Compound Finance liquidation hierarchy
  • Implementation: Smart contract-enforced seniority through collateral factors and liquidation penalties
  • Advantages/Challenges:
    • Advantages: Automatic enforcement, transparent priority, instant settlement
    • Challenges: Limited asset types, cross-chain complexity, legal recognition

Core Concepts Summary (80/20 Principle)

Essential Knowledge (20% that matters 80%)

  1. Four Key Ratio Categories:

    • Profitability: EBITDA margin (target >15%)
    • Leverage: Debt/EBITDA (target <4x for IG)
    • Coverage: EBIT/Interest (target >3x)
    • Liquidity: Current ratio (target >1.0x)

  2. Seniority Hierarchy (recovery rates):

    • First Lien/Secured: 60-90%
    • Senior Unsecured: 40-50%
    • Subordinated: 20-30%
    • Remember: “Security before seniority”

  3. Credit Rating Drivers:

    • Business risk (40%): Industry, position, stability
    • Financial risk (40%): Leverage, coverage, liquidity
    • Management (20%): Strategy, track record, governance

  4. Red Flags to Watch:

    • Declining EBITDA margins
    • Rising leverage (Debt/EBITDA >5x)
    • Interest coverage <2x
    • Negative free cash flow
    • Aggressive accounting changes

Advanced Considerations

  • Covenant Analysis: Incurrence vs maintenance covenants
  • Structural Subordination: OpCo vs HoldCo debt
  • Cross-default Provisions: Contagion risk across debt instruments
  • Change of Control: Put options and rating triggers
  • ESG Factors: Increasingly important for credit ratings

Comprehensive Formula Sheet formula

Profitability Metrics

1. Margin Analysis:
   Gross Margin = (Revenue - COGS) / Revenue
   Operating Margin = Operating Income / Revenue
   EBITDA Margin = EBITDA / Revenue
   Net Margin = Net Income / Revenue
   
2. Return Metrics:
   ROA = Net Income / Total Assets
   ROE = Net Income / Equity
   ROIC = NOPAT / Invested Capital
   ROCE = EBIT / Capital Employed

Leverage Metrics

3. Balance Sheet Leverage:
   Debt/Assets = Total Debt / Total Assets
   Debt/Equity = Total Debt / Total Equity
   Debt/Capital = Debt / (Debt + Equity)
   Financial Leverage = Assets / Equity
   
4. Cash Flow Leverage:
   Debt/EBITDA = Total Debt / EBITDA
   Net Debt/EBITDA = (Debt - Cash) / EBITDA
   Debt/FFO = Total Debt / Funds from Operations
   Debt/FCF = Total Debt / Free Cash Flow

Coverage Metrics

5. Interest Coverage:
   EBIT Coverage = EBIT / Interest Expense
   EBITDA Coverage = EBITDA / Interest Expense
   EBITDA-Capex Coverage = (EBITDA - Capex) / Interest
   Cash Interest Coverage = (EBITDA - Taxes) / Cash Interest
   
6. Debt Service Coverage:
   DSCR = EBITDA / (Interest + Principal)
   Fixed Charge Coverage = (EBITDA + Rent) / (Interest + Rent + Principal)
   Cash Flow Coverage = FCF / Total Debt Service

Liquidity Metrics

7. Short-term Liquidity:
   Current Ratio = Current Assets / Current Liabilities
   Quick Ratio = (Current Assets - Inventory) / Current Liabilities
   Cash Ratio = Cash / Current Liabilities
   Operating Cash Flow Ratio = CFO / Current Liabilities
   
8. Working Capital:
   Working Capital = Current Assets - Current Liabilities
   Working Capital/Sales = Working Capital / Revenue
   Cash Conversion Cycle = DIO + DSO - DPO

Cash Flow Metrics

9. Operating Cash Flow:
   CFO = Net Income + D&A ± Working Capital Changes
   FFO = Net Income + D&A + Deferred Taxes + Non-cash Items
   RCF = FFO - Dividends
   
10. Free Cash Flow:
    FCF = CFO - Capex
    FCFE = FCF - Debt Service + New Debt
    Discretionary CF = FCF - Dividends
    Cash Conversion = FCF / EBITDA

HP 12C Calculator Sequences hp12c

Complete Credit Analysis Workflow

Scenario: Evaluate investment-grade threshold
Given: Revenue=$5B, EBITDA=$1B, Debt=$2.5B, Interest=$150M, Cash=$300M

Step 1: EBITDA Margin
1000 [ENTER] 5000 [÷] 100 [×]
Result: 20% (healthy margin)

Step 2: Debt/EBITDA
2500 [ENTER] 1000 [÷]
Result: 2.5x (investment grade level)

Step 3: Net Debt/EBITDA
2500 [ENTER] 300 [-] 1000 [÷]
Result: 2.2x (stronger on net basis)

Step 4: Interest Coverage
1000 [ENTER] 150 [÷]
Result: 6.67x (strong coverage)

Assessment: BBB+ to A- range

Covenant Compliance Testing

Scenario: Quarterly covenant test
Covenants: Max Debt/EBITDA 4.0x, Min Interest Coverage 3.0x
Actual: Debt=$800M, EBITDA=$180M, EBIT=$140M, Interest=$35M

Step 1: Debt/EBITDA test
800 [ENTER] 180 [÷]
Result: 4.44x
4.0 [-]
Result: -0.44x (BREACH by 0.44x)

Step 2: Interest Coverage test
140 [ENTER] 35 [÷]
Result: 4.0x
3.0 [-]
Result: 1.0x (PASS with 1.0x cushion)

Action: Need waiver for leverage covenant

LBO Debt Capacity Analysis

Scenario: Maximum debt for 4.0x target leverage
Given: EBITDA=$200M, Target multiple=4.0x, Cash=$50M

Step 1: Gross debt capacity
200 [ENTER] 4 [×]
Result: $800M gross debt

Step 2: Net debt capacity
800 [ENTER] 50 [+]
Result: $850M total sources

Step 3: Debt service capability (6% rate)
800 [ENTER] 0.06 [×]
Result: $48M annual interest
200 [ENTER] 48 [÷]
Result: 4.17x coverage (acceptable)

Practice Problems

Basic Level

  1. Ratio Calculation: Company has 600M EBITDA, 100M interest. Calculate EBITDA margin, Debt/EBITDA, and interest coverage.

  2. Seniority Impact: 200M secured, 100M subordinated.

  3. Coverage Test: EBIT of 60M. Does this meet a 3.5x minimum coverage covenant?

Intermediate Level

  1. Multi-Period Analysis: Year 1: Debt/EBITDA = 3.5x, Coverage = 5x Year 2: EBITDA -20%, Debt unchanged Calculate Year 2 metrics and rating impact.

  2. Capital Structure Optimization: Company with 400M. How much debt can it add if it has $500M existing debt?

  3. Stress Testing: Base case FCF 180M. If recession cuts FCF by 40%, calculate coverage ratio and assess refinancing risk.

Advanced Level

  1. Cross-Default Analysis: Company has three debt tranches with different covenants. If it breaches the senior secured covenant, analyze cascade effects.

  2. Recovery Waterfall: Complex structure with $2B assets, multiple debt layers, and inter-creditor agreements. Calculate recovery by class.

  3. Rating Migration: Using transition matrices, calculate 5-year expected loss for BBB-rated bond with 30% historical recovery.

Solutions

  1. EBITDA margin = 20%, Debt/EBITDA = 3x, Coverage = 6x
  2. Secured: 100%, Senior: 75%, Sub: 0%
  3. Coverage = 4.17x, passes covenant (>3.5x)
  4. Year 2: Debt/EBITDA = 4.375x, Coverage = 4x, likely downgrade
  5. Can add 1.6B)
  6. Stressed coverage = 1x, high refinancing risk
  7. Cross-default triggers all facilities, potential acceleration
  8. Depends on inter-creditor agreements and collateral values
  9. 5-year cumulative PD ≈ 5%, EL ≈ 3.5%

DeFi Applications & Real-World Examples

DeFi Protocol Credit Analysis

1. MakerDAO Risk Parameters

Protocol "Credit" Framework:
- Collateral Quality (like asset coverage)
  - ETH: 150% minimum ratio (AA equivalent)
  - WBTC: 175% minimum (A equivalent)
  - USDC: 101% minimum (AAA equivalent)
  
- Stability Fee (like interest rate)
  - Based on collateral risk
  - Adjusted by governance votes
  - Range: 0.5% to 20% annually
  
- Liquidation (like default management)
  - Automatic when ratio breached
  - 13% penalty (recovery haircut)
  - Auction mechanism for collateral

2. Aave Credit Risk Management

Risk Parameters by Asset:
- LTV (Loan-to-Value): Maximum borrowing
  - Stablecoins: 75-80%
  - ETH: 80-82.5%
  - Volatile assets: 35-70%
  
- Liquidation Threshold: Triggers liquidation
  - Typically 5-10% above LTV
  
- Reserve Factor: Protocol revenue
  - 10-35% of interest earned
  - Higher for riskier assets

3. TrueFi Uncollateralized Lending

Traditional Credit Analysis On-Chain:
- Borrower Assessment:
  - Off-chain financials verified
  - On-chain transaction history
  - TRU staker voting on loans
  
- Terms by Credit Quality:
  - Prime borrowers: 8-10% APR
  - Standard: 11-14% APR
  - Higher risk: 15%+ APR
  
- Default Management:
  - SAFU fund (10% of interest)
  - Legal recourse off-chain
  - Recovery through arbitration

Traditional Corporate Credit Cases

High-Profile Defaults & Recoveries

Energy Sector Crisis (2015-2016)
Chesapeake Energy Restructuring:
- Pre-default metrics:
  - Debt/EBITDA: 9x
  - Interest coverage: 0.5x
  
- Capital structure:
  - First Lien: $1.5B (95% recovery)
  - Senior Notes: $7B (15% recovery)
  - Convertibles: $2B (3% recovery)
  
- Lessons:
  - Commodity price hedging crucial
  - Asset quality matters in recovery
  - First lien protection valuable
Retail Apocalypse (2017-2020)
J.Crew Bankruptcy (2020):
- Debt exchanges pre-filing
- Term loan lenders: 72% recovery
- Unsecured bonds: <5% recovery
- IP transfer controversy

Neiman Marcus (2020):
- $5B debt restructured
- First lien: Full recovery
- Unsecured: Equity stake
- MyTheresa carved out pre-filing
COVID-19 Impact Cases
Hertz (2020):
- $19B debt, mostly asset-backed
- Fleet financing: 95%+ recovery
- Unsecured: Initially 0%, later recovered
- Unique equity speculation post-bankruptcy

Carnival Cruise Lines (Survived):
- Raised $20B in crisis
- Secured by ships at 70% LTV
- Unsecured yields hit 15%
- Recovered to IG rating by 2023

Credit Enhancement Structures

Traditional Techniques

1. Asset Security:
   - First mortgage on real estate
   - Blanket lien on assets
   - Specific equipment pledges
   
2. Structural Enhancement:
   - Guarantee from parent
   - Keep-well agreements
   - Cross-default provisions
   
3. Covenant Protection:
   - Debt incurrence limits
   - Restricted payments
   - Change of control puts

DeFi Innovations

1. Over-collateralization:
   - 150-200% typical ratios
   - Automatic liquidation
   - No negotiation needed
   
2. Algorithmic Risk Management:
   - Dynamic interest rates
   - Automated rebalancing
   - Real-time monitoring
   
3. Composable Security:
   - Stacked yield strategies
   - Insurance protocols (Nexus)
   - Hedging via options (Opyn)

Common Pitfalls & Exam Tips

Frequent Mistakes

  1. Confusing EBIT vs EBITDA: EBITDA includes D&A add-back
  2. Gross vs Net Debt: Net debt subtracts cash
  3. FCF definitions vary: Check if includes dividends
  4. Seniority ≠ Security: Secured subordinated > unsecured senior
  5. Covenant types: Maintenance (ongoing) vs incurrence (event-based)
  6. Industry context: Same ratios mean different things by sector

Exam Strategy

  • Quick ratio checks:

    • IG threshold: Debt/EBITDA <4x, Coverage >3x
    • HY threshold: Debt/EBITDA >4x, Coverage <3x
    • Distress: Coverage <1.5x, negative FCF

  • Recovery shortcuts:

    • Secured: 60-80% typical
    • Senior unsecured: 40-50%
    • Subordinated: 20-30%
    • Multiply by (1-PD) for expected recovery

Time-Saving Techniques

Quick credit assessment:
1. Check EBITDA margin (>15% good)
2. Calculate Debt/EBITDA (<4x for IG)
3. Test interest coverage (>3x minimum)
4. Verify positive FCF
5. Result: Pass all = likely IG

Conceptual Tricks

  • Structural subordination: HoldCo debt junior to OpCo
  • Negative covenants: Can be more restrictive than maintenance
  • Rating agencies differ: S&P focuses on debt, Moody’s on cash flow
  • Pro forma adjustments: Always adjust for acquisitions/divestitures

Key Takeaways

Critical Points for Mastery

  1. Four pillars of credit: Profitability, leverage, coverage, liquidity
  2. Debt/EBITDA <4x generally indicates investment grade
  3. Interest coverage >3x suggests adequate debt service ability
  4. Seniority determines recovery, not just payment priority
  5. Industry context crucial: Tech can handle more leverage than retail
  6. Cash flow > earnings: Focus on cash-based metrics
  7. Covenants provide protection but can be amended
  8. Recovery rates vary widely by seniority and industry

Quick Assessment Checklist

Investment Grade Indicators:
✓ EBITDA margin >15%
✓ Debt/EBITDA <4x
✓ Interest coverage >3x
✓ Positive FCF
✓ Stable industry position
✓ Investment-grade parent/support

High Yield Red Flags:
✗ Debt/EBITDA >5x
✗ Interest coverage <2x
✗ Negative FCF trend
✗ High customer concentration
✗ Aggressive financial policies
✗ Weak covenant package

Cross-References & Additional Resources

Key Frameworks

  • Moody’s Rating Methodologies: Industry-specific factors and weightings
  • S&P Corporate Criteria: Business and financial risk matrices
  • Altman Z-Score: Bankruptcy prediction model
  • KMV/Merton Model: Market-based default probability

Advanced Reading

  1. Industry Resources:

    • Moody’s Investors Service sector reports
    • S&P Global Ratings criteria
    • Fitch Ratings Navigator tool
    • Leveraged Finance & High Yield reports

  2. Academic Papers:

    • Altman: “Corporate Financial Distress and Bankruptcy”
    • Duffie & Singleton: “Credit Risk”
    • Merton: “On the Pricing of Corporate Debt”

  3. DeFi Resources:

    • TrueFi Documentation (uncollateralized lending)
    • Maple Finance Methodology
    • Goldfinch Protocol Whitepaper
    • Credix Risk Framework

Review Checklist

Essential Mastery Items

  • Can calculate all key credit ratios from financial statements
  • Understand the seniority hierarchy and typical recoveries
  • Know the difference between secured and unsecured debt
  • Can assess investment grade vs high yield characteristics
  • Understand the components of credit analysis (business + financial)
  • Can calculate expected loss using PD and LGD
  • Know typical ratio thresholds by rating category
  • Understand covenant types and their purposes

Intermediate Proficiency

  • Can perform multi-scenario credit analysis
  • Understand industry-specific credit factors
  • Can analyze complex capital structures
  • Know structural vs contractual subordination
  • Can assess refinancing risk
  • Understand rating agency methodologies
  • Can evaluate covenant packages
  • Know management and governance factors

Advanced Application

  • Can build credit models with sensitivity analysis
  • Understand distressed debt analysis
  • Can price credit risk using CDS spreads
  • Know recovery analysis techniques
  • Can design optimal capital structures
  • Understand DeFi credit protocols
  • Can map traditional credit to DeFi parameters
  • Know cross-default and inter-creditor dynamics

Pre-Exam Checklist

  • Memorized key ratio thresholds for IG vs HY
  • Practiced HP 12C sequences for all ratios
  • Reviewed seniority rankings and recovery rates
  • Understood qualitative vs quantitative factors
  • Can quickly identify strongest/weakest credit metrics
  • Know time allocation strategy (90 seconds/question)
  • Reviewed common calculation errors
  • Practiced with problems across difficulty levels

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