M16 – Credit Analysis for Corporate Issuers: CFAI Practice Problems
Question 1
Corporate credit analysis typically involves both qualitative and quantitative factors. Which of the following is best classified as a qualitative factor?
- A. The company’s interest coverage ratio and leverage ratios.
- B. The quality of management, competitive position, and industry outlook.
- C. The company’s free cash flow to debt ratio and EBITDA margin.
Answer
B. The quality of management, competitive position, and industry outlook.
Qualitative factors in corporate credit analysis include management quality, corporate governance, competitive advantages, industry dynamics, and business strategy. Quantitative factors include financial ratios such as leverage, coverage, and profitability metrics.
📖 Giải thích chi tiết
Phân tích tín dụng doanh nghiệp gồm hai nhóm yếu tố:
Định tính (Qualitative):
- Chất lượng quản lý và quản trị doanh nghiệp
- Vị thế cạnh tranh và rào cản gia nhập
- Triển vọng ngành và chiến lược kinh doanh
Định lượng (Quantitative):
Tỷ số đòn bẩy (Debt/EBITDA, Debt/Capital)
Tỷ số thanh toán (Interest coverage, FFO/Debt)
Biên lợi nhuận và dòng tiền tự do
A sai: Tỷ số tài chính là yếu tố định lượng.
B đúng: Management, competitive position, industry outlook là yếu tố định tính.
C sai: FCF/Debt và EBITDA margin là yếu tố định lượng.
Question 2
In a corporate bankruptcy, the recovery rate for senior unsecured bondholders is most likely to be:
- A. Higher than the recovery rate for senior secured bondholders.
- B. Lower than the recovery rate for senior secured bondholders but higher than for subordinated bondholders.
- C. Equal to the recovery rate for subordinated bondholders under the absolute priority rule.
Answer
B. Lower than the recovery rate for senior secured bondholders but higher than for subordinated bondholders.
The seniority ranking determines the order of repayment in bankruptcy: senior secured > senior unsecured > subordinated. Higher seniority leads to higher recovery rates.
📖 Giải thích chi tiết
Thứ tự ưu tiên thanh toán khi phá sản (priority of claims):
Senior Secured → Recovery cao nhất (có tài sản thế chấp)
Senior Unsecured → Recovery trung bình
Senior Subordinated → Recovery thấp hơn
Subordinated → Recovery thấp
Junior Subordinated → Recovery rất thấp
- A sai: Senior unsecured luôn có recovery thấp hơn senior secured.
- B đúng: Theo đúng thứ tự ưu tiên.
- C sai: Subordinated có recovery thấp hơn senior unsecured theo absolute priority rule.
Question 3
A rating agency assigns a corporate family rating (CFR) of BBB to a company and a corporate credit rating (CCR) of BBB+ to its senior secured bonds. The difference between the CFR and CCR is best explained by:
- A. Notching, which adjusts ratings based on the seniority and security of specific debt issues.
- B. An error in the rating process that will be corrected at the next review.
- C. The fact that CCR always exceeds CFR for all investment-grade issuers.
Answer
A. Notching, which adjusts ratings based on the seniority and security of specific debt issues.
Notching is the practice of adjusting individual issue ratings relative to the issuer’s overall (family) rating. Senior secured debt may be notched up (higher rating) because it has priority claims and collateral backing, resulting in higher expected recovery in default.
📖 Giải thích chi tiết
Notching điều chỉnh rating từng trái phiếu so với rating tổng thể của công ty:
CFR (Corporate Family Rating): Rating tổng thể của tổ chức phát hành
CCR (Corporate Credit Rating): Rating của từng trái phiếu cụ thể
Senior secured: thường notch UP (rating cao hơn CFR) → recovery cao hơn
Subordinated: thường notch DOWN (rating thấp hơn CFR) → recovery thấp hơn
A đúng: Notching giải thích chênh lệch giữa CFR và CCR.
B sai: Đây là quy trình bình thường, không phải lỗi.
C sai: CCR có thể cao hơn hoặc thấp hơn CFR tùy seniority.
Question 4
When comparing two companies in the same industry, the one with a higher Debt/EBITDA ratio and lower EBITDA interest coverage ratio most likely:
- A. Has stronger credit quality due to greater financial leverage benefits.
- B. Has weaker credit quality due to higher leverage and lower ability to cover interest payments.
- C. Cannot be assessed without knowing the companies’ revenue growth rates.
Answer
B. Has weaker credit quality due to higher leverage and lower ability to cover interest payments.
Higher Debt/EBITDA indicates greater leverage (more debt relative to earnings), and lower interest coverage means less cushion to meet interest obligations. Both signal weaker credit quality and higher default risk.
📖 Giải thích chi tiết
Hai tỷ số quan trọng trong phân tích tín dụng doanh nghiệp:
Tỷ số Ý nghĩa Tín dụng tốt hơn khi Debt/EBITDA Đòn bẩy tài chính Thấp hơn EBITDA/Interest Khả năng trả lãi Cao hơn
- A sai: Đòn bẩy cao không phải lúc nào cũng tốt — tăng rủi ro tín dụng.
- B đúng: Debt/EBITDA cao + Interest coverage thấp = credit quality yếu.
- C sai: Dù revenue growth quan trọng, hai tỷ số này đã cung cấp đủ thông tin để so sánh.