Our client, a US-based financial institution, wanted us to evaluate the creditworthiness of ABC Corporation and assess the risks associated with extending a term loan facility.
JMI was told to make a recommendation on whether the financial institution should approve the term loan facility and suggest an adequate structure and negative covenants.
Solution
Business Overview: The JMI team prepared a detailed description of the company, including its history, industry, products or services, target market, competitive advantage, and overall business strategy.
Security and Structure Analysis: The JMI team assessed the quality and liquidity of the collateral or security offered to support the financing and conducted subordination risk analysis.
Financial Statements: Reviewed the company’s past five-year financial statements, analyzing its financial performance and evolution of the most important liquidity, efficiency, profitability and leverage ratios.
Cash Flow Adequacy: Estimated the future cash flows modelling base case projections as well as down case scenarios to assess the company’s payment ability in adverse conditions, such as economic downturns, changes in interest rates, among others.
Credit Analysis: Analyzed the company's credit history, checking for any defaults, delinquencies, or bankruptcies with the financial system. Evaluated credit ratings and the ability of the company to access capital.
Management Assessment: JMI team evaluated the competence and relevant experience of the company's management team. Assess their track record, strategy and business plan, and their ability to effectively manage risks.
Industry & Market Analysis: Conducted extensive research to evaluate the company’s position within its industry and the overall market conditions considering factors such as competition, market trends, regulatory environment, and potential risks or opportunities specific to the industry.
Key Risks & Mitigants: JMI team identified and evaluated key risks that could impact the borrower`s ability to fulfill its financial obligations and determined the appropriate mitigants to minimize the impact of these risks.
Outcome
A comprehensive credit memorandum was prepared, summarizing the deal terms, collateral details, company information, financial overview, industry overview, and other relevant information.
Based on the credit analysis, lenders made informed decisions regarding the terms of financing, such as interest rates, loan amounts and repayment schedule, and a structure within their risk appetite framework.
