Board Topic: loan covenants what are the critical covenants required?
Click here to view this topic in its original format
LoanUniverse Community > General Chat >

loan covenants

Posted by: Guest_vindyjunior Sep 19 2003, 08:18 AM
wink.gif TQ for the explaination on the credit analysis. Now I would appreciate if you could explain in brief on the important covenants required when approving a loan on different types of industries, eg: Shipping,Timber, Steel, Food, etc. And what is CAPEX financing?.

I understand that Cash Flow is an important tool in analyzing the repayment capability of the bizz, bizz operation & etc. But when doing such analysis / Sensitivity analysis, what are the critical factors I must zoom in?

I have not witnessed a corporate credit analysis / commercial papers on the approval of loan before ! I know I can always get it from the other departments in the bank a sample copy of it. But I would prefer if you could inform me on the relevant web site which has this sample ( if there's such web site) or better if you could provide me with one.

Posted by: loanuniverse Sep 19 2003, 06:11 PM
Now I would appreciate if you could explain in brief on the important covenants required when approving a loan on different types of industries, eg: Shipping,Timber, Steel, Food, etc. And what is CAPEX financing?.

I am sorry Vindy, but I can not talk specifics about those industries. First, I am not familiar at doing loans for any of them. I think that I might have done analysis for syndicated loans for two steel companies, one shipping company and maybe a few food wholesalers. I know nothing about timber companies. In addition, a credit analyst rarely gets into the business of setting up the covenants for the transactions. Big loans usually carry a few financial covenants that are pretty much standard, and loans to middle market companies are usually negotiated by the lending officer with the management of the companies.

Frankly, I prefer to stay away from structuring the deal. It is much easier to just take a look at the deal as presented and give an overall opinion on risk. This does not mean that there haven’t been instances where I have suggested a covenant myself, but those are rare.

The important thing to remember is that whatever covenants are set in place for the borrower, they must be sensible to its operations. For example, you might not want to place a covenant on a retail store demanding that inventory is kept within a level range during the year. After all, the store might need to double or triple inventory for the holidays. If a loan request was to be delivered to my desk for say a “Timber company”, for which I have no experience at all. and I was also told to come up with a set of covenants my first instinct would be to tailor them according to the financial information of the company in front of me. The fact that it is a “Timber company” would not be as important. However, I would still get industry information to make sure that the company is performing at the same level or better than its peers.

CAPEX financing is not a term used much in the States. I am going to guess that it means Capital Expenditures financing. Therefore, we are talking long-term financing for purchases of plant, equipment and investment

I understand that Cash Flow is an important tool in analyzing the repayment capability of the bizz, bizz operation & etc. But when doing such analysis / Sensitivity analysis, what are the critical factors I must zoom in?

Repayment. It is all about repayment. It is all about cash flow paying your loan back.

I have not witnessed a corporate credit analysis / commercial papers on the approval of loan before ! I know I can always get it from the other departments in the bank a sample copy of it. But I would prefer if you could inform me on the relevant web site which has this sample ( if there's such web site) or better if you could provide me with one.

Sorry I can’t give you one. First, I would have to delete all references to my employer, the borrower, etc. It would also be best if you got one or two or three from your bank so that you get an idea of the type of work that is expected, and how it is presented.

P.S: Did you read my page about loan covenants already? is here

Posted by: Guest_vindyjunior Sep 19 2003, 10:32 PM
TQ for the assistance. I really appreciate it. Bye
email

Comments are closed.