Financial Analysis. Lesson 22. Credit Analysis and Rating Methodologies
Financial Analysis. Lesson 22. Credit Analysis and Rating Methodologies
Credit analysis evaluates a borrower’s ability to meet debt obligations.
Credit rating provides an assessment of creditworthiness for issuers or bonds.
Investment-grade ratings indicate low risk and high likelihood of repayment.
Speculative-grade ratings suggest higher risk and potential for credit default.
Default probability estimates the likelihood of a borrower’s failure to pay.
Credit spread is the difference in yield between credit ratings.
Collateral is an asset pledged to secure a loan or bond.
Debt-to-income ratio compares total debt payments to borrower income.
Loan-to-value ratio (LTV) measures loan amount against asset’s appraised value.
Credit enhancement uses tools like insurance to improve credit quality.
Sovereign credit rating assesses creditworthiness of a government’s debt.
Corporate credit rating evaluates a company's ability to meet financial obligations.
Credit default swap (CDS) is insurance against debt defaults.
Loss given default (LGD) estimates percentage loss if borrower defaults.
Expected loss calculates average loss over time from potential credit defaults.
Recovery rate is the amount recovered after a default as percentage.
Debt servicing coverage ratio (DSCR) measures ability to cover debt obligations.
Credit scoring model assigns a score based on financial factors.
Credit watch alerts investors to potential credit rating changes.
Subordination ranks debt in priority for repayment if default occurs.
Technical Examples:
Debt-to-income ratio is essential in assessing borrower repayment capacity.
Credit default swaps (CDS) provide insurance against bond or loan defaults.
Sovereign credit rating assesses financial health and risk for government debt.