Reading 47. Fundamentals of Credit Analysis
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Learning Outcome Statements
|Reading 47. Fundamentals of Credit Analysis|
|1. Credit Risk|
a. describe credit risk and credit-related risks affecting corporate bonds;
b. describe default probability and loss severity as components of credit risk;
|2. Seniority Ranking and Priority of Claims|
c. describe seniority rankings of corporate debt and explain the potential violation of the priority of claims in a bankruptcy proceeding;
|3. Credit Ratings|
d. distinguish between corporate issuer credit ratings and issue credit ratings and describe the rating agency practice of "notching";
e. explain risks in relying on ratings from credit rating agencies;
|4. Credit Analysis|
f. explain the four Cs (Capacity, Collateral, Covenants, and Character) of traditional credit analysis;
g. calculate and interpret financial ratios used in credit analysis;
h. evaluate the credit quality of a corporate bond issuer and a bond of that issuer, given key financial ratios of the issuer and the industry;
|5. Credit Risk vs. Return: Yields and Spreads|
i. describe factors that influence the level and volatility of yield spreads;
|6. Special Considerations of High-Yield, Sovereign, and Municipal Analysis|
j. explain special considerations when evaluating the credit of high yield, sovereign, and municipal debt issuers and issues.