A Pragmatist’s Guide to Leveraged Finance: Credit Analysis for Bonds and Bank Debt (paperback) (Applied Corporate Finance)

A Pragmatist's Guide to Leveraged Finance: Credit Analysis for Bonds and Bank Debt (paperback) (Applied Corporate Finance)

The high-yield leveraged bond and loan market (“junk bonds”) is now valued at + trillion in North America, €1 trillion in Europe, and another trillion in emerging markets. What’s more, based on the maturity schedules of current debt, it’s poised for massive growth. To successfully issue, evaluate, and invest in high-yield debt, however, financial professionals need credit and bond analysis skills specific to these instruments. Now, for the first time, there’s a complete, practical, and expert tutorial and workbook covering all facets of modern leveraged finance analysis. In A Pragmatist’s Guide to Leveraged Finance, Credit Suisse managing director Bob Kricheff explains why conventional analysis techniques are inadequate for leveraged instruments, clearly defines the unique challenges sellers and buyers face, walks step-by-step through deriving essential data for pricing and decision-making, and demonstrates how to apply it. Using practical examples, sample documents, Excel worksheets, and graphs, Kricheff covers all this, and much more: yields, spreads, and total return; ratio analysis of liquidity and asset value; business trend analysis; modeling and scenarios; potential interest rate impacts; evaluating and potentially escaping leveraged finance covenants; how to assess equity (and why it matters); investing on news and events; early stage credit; and creating accurate credit snapshots. This book is an indispensable resource for all investment and underwriting professionals, money managers, consultants, accountants, advisors, and lawyers working in leveraged finance. In fact, it teaches credit analysis skills that will be valuable in analyzing a wide variety of higher-risk investments, including growth stocks.

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3 thoughts on “A Pragmatist’s Guide to Leveraged Finance: Credit Analysis for Bonds and Bank Debt (paperback) (Applied Corporate Finance)”

  1. Aaron C. Brown says:
    13 of 13 people found the following review helpful
    5.0 out of 5 stars
    Extremely pragmatic, May 10, 2012
    By 
    Aaron C. Brown (New York, New York United States) –
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    Vine Customer Review of Free Product (What’s this?)
    The first thing to know about this book is the title is completely honest. This is a “pragmatist’s” guide, there is zero theory, zero context, just clear instruction on how to do the job of evaluating and managing high yield bonds and tradable bank loans. There is no mention of models of interest rate evolution, option adjusted spread, quantitative models of credit, credit derivatives or statistical analysis. The author assumes you will do your analysis by typing formulae into a spreadsheet: no Bloomberg, no Monte Carlo package, no Python code; and no mention of things like sensitivity analysis, documentation or testing. If you want that sort of thing, you will do much better with Quantitative Credit Portfolio Management, Leveraged Finance or Portfolio Risk Analysis.

    On the other hand, the author’s clear minimalist style packs an awful lot of valuable experience into a short space. For example, 22 pages (Chapter 13, Structural Issues: Coupons and Chapter 14, Structural Issues: Maturities, Calls and Puts) cover everything you need to skim loan documents and build a quick model of cash flows. A textbook would take at least five times as long, and never get to essential nitty-gritty concepts like pricing grids, clawbacks and applicable high yield discount obligations (AHYDOs). There’s no wasted material here, and almost nothing left out. Another unusual virtue is the book deals explicitly with real-world conditions, like how to skim an indenture or financial statement when you don’t have time to read it carefully, how to do a rapid credit analysis to support a trading decision–what you have to focus on constantly to avoid being blindsided and what dangers you can worry about after the close of trading.

    One minor objection is the author appears to have a low opinion of the reader’s intelligence, perhaps based on breaking in new analysts over the years. The end-of-chapter problems are jokes, more like the easiest questions on an SAT reading comprehension exam than anything to test knowledge or reasoning skills. Chapter 15 (Structural Issues: Ranking of Debt) opens with, “You might wonder why this ranking matters.” If you have paid $64.99 for a book on leveraged finance and made it up to page 137 while still wondering why the ranking of your obligation in the issuer’s capital structure matters, you should go home and rethink your life.

    If you already know the theory, this book is a great way to prepare to practice. If you don’t know any theory, it could be a dangerous thing.

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  2. mmharrin says:
    6 of 6 people found the following review helpful
    5.0 out of 5 stars
    Exactly as advertised, July 24, 2012
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    I am a senior analyst in a buy-side leveraged finance shop and believe the book does a great job of outlining the process of credit analysis and bond assessment for the junior analyst. I read the book to see whether it made sense as a training tool for our new junior analysts and I believe strongly that it does. In addition, while I didn’t think I was the target market, I found the book to be an interesting read and a worthwhile look into the mental systems used by a long-time analyst. I definitely took away a few ideas on how I might alter my own procedures for the better. Mr Kricheff lays out the nuts and bolts of who the players are in the market, then moves on to the issuance of a new piece of debt and shows the new analyst what pieces of information are important to look for and even how to prioritize between different pieces of information. The book lays out the basics of what a bond is, how they are priced and how to analyze the structure of the security. He looks at how to analyze the underlying company. He covers what he thinks are the two first items to consider (liquidity and asset coverage) and then moves on to discuss which financial measures are important and why; what are the important covenants and how can one use them. How much modeling do you need to do, how can you begin the process and how in-depth should a model realistically be? How can you use your model to adapt to changing newsflow or market pricing? What are some other pieces of information used by an analyst to decide between competing investment choices? These are all of the types of things covered in the book. The book does not target the senior analyst, but if one were interested in reading about another analyst’s process, you could find the book interesting. For the new junior analyst, I think the book could accelerate the learning process significantly and give the new analyst a significant leg up in starting his/her career.

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  3. C. Ang says:
    3 of 3 people found the following review helpful
    4.0 out of 5 stars
    The Title Says It All, May 29, 2012
    By 
    C. Ang (Chicago, IL) –
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    Vine Customer Review of Free Product (What’s this?)
    This book ignores a lot of the theoretical underpinnings and build-up many textbooks try to do and goes straight to what one needs to know in practice. I typically favor books with lots of theory and models, but there is some benefit to a book like this. I do admire the attempt to cram the important points into a few pages, which makes these usually boring topics (e.g., covenants) much more digestible.

    Having been exposed in practice to a lot of the issues discussed in this book may have made me appreciate this book more. However, I am concerned that for those that do not have a good grasp of the theory, this book will lead to a shallow understanding of leveraged finance that so many analyst and recent grads already fall prey to.

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