A Pragmatist's Guide to Leveraged Finance

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

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.

"The author applies his vast market experience to detail the underlying tenets of credit analysis in a user-friendly fashion. This is certain to become the 'go to' book for all participants in the leveraged finance market!" --Pat Dyson, Managing Director, UBS O'Connor "Bob Kricheff's extensive experience in leveraged finance makes him the perfect person to write what is a very helpful and easy-to-use book on credit analysis. He blends the technical aspects, along with the practical, to provide the reader with a thorough understanding of how analysts do their jobs." --Terrence J. Mullen, CFA, Group Head of Public Research, Allstate Investments, LLC "This book belongs on the bookshelf of anyone engaged in or considering investing in leveraged finance. It is a must-read for new analysts on the buy side and the sell side of the high yield marketplace. I cannot think of anyone, other than Bob, who is better positioned with deep knowledge and professional experience to pen this book." --Linda Carter, Portfolio Manager and Vice President, Eaton Vance Investment Managers "Bob has been involved in a variety of roles in the high yield market since the market's infancy in the 1980s. This book is an excellent resource for beginners who are trying to learn the intricacies of the high yield market as well as for experienced professionals looking to refine their credit skills. I found the book well written and I highly recommend it." --Richard J. Lindquist, Managing Director, Morgan Stanley Investment Management