Credit RIsk

Consider the following Cs of credit analysis:

I. Capacity
II. Collateral
III. Covenants

How many of the above are described as largely qualitative measures?

Consider the following statements regarding credit risk components:

I. Expected Loss is the product of the Probability of Default and the Loss Given Default.
II. Loss Given Default is the investor's loss conditional on an issuer event of default.
III. The Recovery Rate represents the percentage of the expected loss that is recovered.

How many of the above statements are accurate according to the text?

Consider the following potential sources of repayment:

I. Operating cash flows
II. Sovereign tax revenues
III. Asset sales

How many of the above are listed as primary or secondary sources of repayment for a Corporate borrower?

Consider the following credit ratings:

I. Baa3
II. BBB-
III. Ba1

How many of the above are classified as "non-investment grade" (high yield)?

Consider the following potential limitations of credit ratings:

I. Rating agency decisions may lag market pricing of credit risk.
II. Ratings may overlook key financial risks or involve miscalculations.
III. Ratings always capture environmental risks accurately.

How many of the above are explicitly described as pitfalls or limitations of relying on credit ratings?

Consider the following types of debt:

I. First Lien Debt
II. Second Lien Debt
III. Senior Unsecured Debt

How many of the above have a higher priority of claim than Subordinated Debt?

Consider the following factors used in credit analysis:

I. Capacity
II. Capital
III. Character

How many of the above are classified as "bottom-up" factors?