Chapter 1 Introduction 1 Chapter 2 Common Leveraged Finance Terms 7 General Terms 7 Yield and Spread Definitions 11 Questions 14 Chapter 3 Defining the Market and the Ratings Agencies 17 Chapter 4 The Participants 21 The Issuers 21 The Sell Side 22 The Buy Side 23 Private Equity 25 Chapter 5 Why Is Leveraged Finance Analysis Unique? 27 Chapter 6 The Major Components of Analysis 31 The Components 32 A Pragmatic Point on the Various Aspects of Analysis 34 Chapter 7 Some Features of Bank Loans 35 Questions 40 Chapter 8 A Primer on Prices, Yields, and Spreads 41 The Basics 41 A Few Points on Yields 43 A Few Points on Spreads 43 Bank Loan Coupons 44 Duration 45 Total Returns 45 Deferred Payment Bonds: Prices and Yields 46 A Pragmatic Point on Terminology 48 Questions 49 Chapter 9 A Primer on Key Points of Financial Statement Analysis 51 EBITDA 52 Capital Expenditures 57 Interest Expenses 58 Taxes 59 Changes in Working Capital 59 Free Cash Flow 61 The Balance Sheet 62 A Pragmatic Point on Financial Statements 64 Questions 65 Chapter 10 Credit Ratios 67 EBITDA/Interest Ratio 69 Debt/EBITDA 72 A Pragmatic Point on the Leverage Ratio 76 A Pragmatic Point on Valuations 77 Free Cash Flow Ratios 79 Changes in Working Capital 80 Dividends 80 Acquisitions 80 One-Time Charges 81 The FCF/Debt Ratio 82 A Pragmatic Point on Free Cash Flow 82 Questions 84 Chapter 11 Business Trend Analysis and Operational Ratios 85 Business Trends 86 Margins and Expenses 88 Capital Expenditures 91 Questions 93 Chapter 12 Expectations, Modeling, and Scenarios 95 Sales and Revenue 96 A Full Model 99 Scenarios 108 A Pragmatic Point on Bank Maintenance Covenants and Expectations 110 Questions 112 Chapter 13 Structural Issues: Coupons 113 Loan Coupons 113 Bond Coupons 115 Zero and Zero-Step Coupons 115 How the Coupon Is Determined 121 Modeling Changes in Coupons 122 Questions 123 Chapter 14 Structural Issues: Maturities, Calls, and Puts 125 Maturities 125 Calls 126 Clawback 129 10% Call 130 Cash Flow Sweeps 131 AHYDO 132 Other Bank Prepayments 132 Open-Market Repurchases 133 A Pragmatic Point on Early Refinancing of Debt 134 Questions 136 Chapter 15 Structural Issues: Ranking of Debt 137 Ranking 138 Structural Subordination 141 Subsidiary Guarantees 145 Questions 148 Chapter 16 Key Leveraged Finance Covenants 149 Debt Incurrence 151 Defined Terms and Carve-outs 153 Defined Term Examples 154 Carve-outs 155 Restricted Payments 156 Change of Control 158 Asset Sale 160 Reporting Requirements 161 Other Covenants 162 Affirmative/Maintenance Covenants 163 Restricted and Unrestricted Groups 165 Questions 167 Chapter 17 Amendments, Waivers, and Consents 169 Questions 177 Chapter 18 Making Money or Losing It Off of News Events 179 Scenario: An Issuer Makes an Acquisition 180 FastFoodCo (FFC) Facts 180 GoodFoodCo (GFC) Facts 181 Deal Facts 181 Scenario: The Issuer Gets Bought 185 Scenario: An Issuer Announces an IPO 189 Scenario: An Issuer Is Facing a Maturity 192 A Pragmatic Point on the Blended Price to Retire Debt 194 Questions 195 Chapter 19 Management and Ownership 197 Chapter 20 I'm Looking at Debt, So Why Does Equity Matter 201 Valuation 201 Monitoring Equities 206 Questions 208 Chapter 21 Value, Relative Value, and Comparable Analysis 209 Questions 216 Chapter 22 New Issuance 217 Chapter 23 Distressed Credits, Bankruptcy, and Distressed Exchanges 221 Claims 224 Classes of Claims 226 Subordination 227 Claims Arising from Bankruptcy 229 Valuing the Enterprise 230 Sale or Restructuring 231 Restructuring Without Bankruptcy 234 A Few Pragmatic Points on Bankruptcy Reorganizations 236 Questions 238 Chapter 24 Preparing a Credit Snapshot 239 Chapter 25 The Investment Decision Process 243 A Sample Investment Process 244 Big-Picture Items 245 The Company 245 Credit Fundamentals 246 Event Analysis 246 Security Analysis 247 Relative Value and Return 247 The Decision 247 Some Investment Traps 248 Chapter 26 Closing Comments 251 Answers 253 Index 259
The high-yield leveraged bond and loan market ("junk bonds") is now valued at $3+ trillion in North America, EURO1 trillion in Europe, and another $1 trillion in emerging markets. What's more, based on the maturity schedules of already issued debt, it's poised for massive growth. To successfully issue, evaluate, and invest in high-yield debt, however, financial professionals need credit and bond analysis skills specific to these instruments. Now, for the first time, there's a complete, practical, and expert tutorial and workbook covering all facets of modern leveraged finance analysis.
Credit Suisse managing director Bob Kricheff explains why conventional analysis techniques are inadequate for leveraged instruments, clearly defines the unique challenges sellers and buyers face, walks step-by-step through deriving essential data for pricing and decision-making, and demonstrates how to apply it. Using practical examples, sample documents, Excel worksheets, and intuitive graphs, Kricheff covers:
Robert S. Kricheff, Managing Director and Head of the Americas High Yield Sector Strategy for Credit Suisse, has more than 20 years of experience in credit analysis. He has followed industries including media, cable, satellite, telecom, gaming, entertainment, healthcare, and energy; worked with emerging market corporates; and performed both strategy and portfolio analysis. His work has covered investment vehicles including bonds, converts, loans, preferred stocks, and credit default swaps. He holds a BA from New York University in Economics, and an MS c from the University of London SOAS in Financial Economics.