Reading 44: Fundamentals of Credit Analysis

Credit risk is best described as being composed of which two components?

If a bond has a default probability of 2 percent and an expected recovery rate of 60 percent, the expected loss is closest to:

The risk that a bond's price will decline due to a widening of its yield spread relative to a benchmark is best classified as:

Which of the following rankings of debt seniority is correct, from highest priority to lowest priority?

In the event of a bankruptcy, the principle that senior creditors must be paid in full before junior creditors receive anything is known as:

Which of the following statements regarding recovery rates is most accurate?

The practice by rating agencies of assigning different ratings to bonds of the same issuer is best referred to as:

An issuer credit rating usually applies to the issuer's:

Which of the following ratings would indicate a bond is 'investment grade'?

Structural subordination is most relevant when analyzing the debt of:

Which of the 'Four Cs' of credit analysis focuses on the borrower's ability to generate cash flow to service debt?

In the context of the 'Four Cs', which of the following is considered a negative covenant?

When assessing 'Character' in credit analysis, an analyst would most likely evaluate:

Which of the following financial measures is calculated as Operating Income plus Depreciation and Amortization?

Funds from operations (FFO) is best described as:

Which of the following ratios is a 'coverage' ratio?

A lower value for which of the following ratios indicates lower credit risk?

Company A has Total Debt of $500 million, Shareholders' Equity of $500 million, and EBITDA of $100 million. What is its Debt/Capital ratio?

During which phase of the credit cycle do credit spreads typically narrow?

Yield spreads on corporate bonds are least likely to be affected by:

High yield bonds are often referred to as:

For a high yield issuer, which of the following sources of liquidity is considered the most reliable?

A 'change of control put' covenant in a high yield bond indenture allows bondholders to:

In a holding company structure, 'structural subordination' means that:

Which of the following is considered a 'top-heavy' capital structure?

Sovereign debt credit analysis assesses a government's willingness to pay because:

When rating sovereign debt, credit rating agencies typically assign:

General obligation (GO) municipal bonds are backed by:

Revenue bonds typically generally have higher yields than General Obligation bonds because:

Which of the following is NOT one of the five key areas for evaluating sovereign debt?

Enterprise Value (EV) is calculated as:

A limitation of relying solely on credit ratings is that:

Generally, for two bonds with equal duration, the one with a lower seniority ranking will exhibit:

Which of the following would be an example of an 'affirmative covenant'?

If a company has a 'restricted subsidiary', this means:

Regarding yield spreads, 'flight to quality' refers to:

A bond trading at a spread of +400 basis points over the benchmark Treasury having a yield of 3.0% would have a yield of:

Which factor would most likely cause credit spreads to narrow?

Which ratio measures the amount of debt in the capital structure relative to the company's equity market capitalization?

The ratio 'EBIT / Interest Expense' is also known as:

In credit analysis, 'goodwill' is typically:

A 'maintenance margin' requirement is relevant to futures, but in credit analysis, a covenant requiring a minimum Interest Coverage ratio is an example of:

Secured debt backed by a pledge of specific assets is often referred to as:

When calculating the 'Free cash flow after dividends' leverage ratio, a value greater than zero implies:

Municipal revenue bonds often have higher credit risk than GO bonds because:

Which of the following is an example of an 'institutional assessment' factor in sovereign credit analysis?

If a corporate bond portfolio manager wants to estimate the percentage change in value for a given change in yield spread, they should use:

Credit migration risk is also known as:

Which of the following would be an equity-like approach to high yield analysis?

The 'Two Cs' of sovereign credit analysis that are NOT part of the corporate 'Four Cs' might be best mapped to which sovereign categories?