The purpose of this course is to give you a good and practical understanding of methods and tools for analyzing, modelling mitigating and controlling corporate credit risk.
We start with general introduction to corporate credit risk and discuss the challenges of managing this type of risk – in "normal" times, during stressful market conditions as well as in "low yield, low spread" environments.
We then take a closer look at some of the "fundamentals" of corporate credit risk. We explain the business and financial risks that may affect a corporation's ability to meet its financial obligations, and we discuss how various credit events and credit spread changes may affect loans and investment products. We will also discuss how "structural" features such as seniority, parental support, and structural subordination affect the credit quality of various corporate debt instruments.
Further, we look at various methods for assessing corporate credit risk. We explain how a corporation's business models, business environment and financial statements can be analyzed to determine how various economic, business and financial factors affect corporate credit quality and debt servicing ability and likelihood of default.
We also look at credit scoring, at the rating system and methodologies used by the major rating agencies such as Moody's, Standard and Poor's and Fitch, and at the "internal rating models" used by banks under the updated Basel regulation (Basel III). First, we give an in-depth explanation of how to build, calibrate and implement of the internal rating system. Then, we look at how the risk components such as "Probability of Default" (PD) and "Loss Given Default" (LGD) are calculated.
Finally, we give a thorough explanation of method and instruments for mitigating corporate credit risk. Topics will include the use of loan covenants, margining and collateral. We also explain and demonstrate how credit risk can be transferred, wholly or partly, using credit derivatives, asset securitization and other structured finance transactions.