Debt financing questions
Hi guys,
Are there any good practical resources on debt financing? (ability to pay, sizing, risk metrics etc). Not much available on Amazon (unless one is interested in a subset that is project finance).
How do you bargain down lenders on interest margin?
Thanks much!
Also interested.
I’ve spent a few years trying to find a resource like you’re asking about. Not quite sure it exists in the form you are looking for.
Truth is I think the art of credit analysis / underwriting hasn’t really been codified, outside of formal credit training programs that commercial / investment banks used to sponsor in the 80s and 90s. I don’t think even those they exist anymore. I think it’s probably difficult to learn about this specifically outside of working on a levfin or dcm desk at an investment bank or within corporate banking groups.
The only book I’ve found that comes close is called “a pragmatists guide to leveraged finance” by bob kricheff. It’s not cheap and not sure it’s worth the money because it’s much more qualitative than quantitative. Plus it’s pretty short so it barely scratches the surface of the underwriting process.
With respect to your specific question about negotiating interest rates, I think there are a lot of inputs that go into that. Aside from just the structure of the paper, there is also the market factor. Even if you negotiate the coupon lower, if comps suggest that the interest should be higher or lower, the paper would be issued at OID/OIP irrespective of what’s negotiated based on the environment.
I did a rotational program last summer for my bank that has us do a "credit college" training for a week. Highly recommend if the price is right and you can pick your instructor's brain on your questions. Lookup Hill Financial Education that is who we used, guy was awesome.
I'm currently doing a corp credit training course at my bank, its pretty structured and basically walks from the fundamentals of credit analysis (supplemented with case studies and a training module) and finishes with bank specific policy and guidance. The whole training is very qualitative. As alluded to by bobbybonilla commercial underwriting is more an art than it is a science, and exact metrics/benchmarks/guidelines are not codified at an industry level. Credit analysis comes down to the simple question of how do the lender(s) get repaid, and the same type of cashflow/management/industry/etc analysis used in other types of financing is performed to determine the creditworthiness (whatever that may be for your particular flavor of credit).
For what its worth, a Project Finance debt sizing model is practically the same as a corporate debt sizing model apart from differences in terms and terminology. Debt sizing is debt sizing - it's not like capacity of a project, given target leverage metrics and coupon, is different from capacity of a corporate all else equal. Difference would be instead of sculpting for DSCR you may have a fixed amort profile for your TL tranches, or a target leverage ratio, or whatever.
** found a great thread with a bit of googling
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