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The Long Road to Middle-Market Securitization

companies that are too big for one financial institution to handle, but not big enough to obtain financing in the bond or equity markets. Basically, the middle market encompasses companies that have annual sales of between $50 mil-lion and $500 million. Such compa-nies tend to have less access to capital and more dependence on banks for financing.

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How to allocated capital to business units

40 books long enough for a bank to bring its diversification levels in line with the competition. In this case, the primary incentive should be for the bank to improve diver-

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Credit Risk Operating Leverage andBreak-even Analysis for

Worse, companies doing business in industries characterized by both high operating lever-age and volatile sales will be vulnerable to erratic profits. Construction suffers from both maladies, so recession and expansion can give the construction industry a bad case of the shakes. Let’s take a look at how to calculate operating

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Forecasting Cash Flow Is Essential, but Few Customers Can

forecasting. Most companies have a fragmented tech-nology environment. Systems integration is essential to get more value out of the existing information technology. 4. Set targets and measure forecasting accuracy. While most companies measure forecasting accuracy, few set accu-racy targets or link accuracy to compensation. When

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The impact of working capital investment on the value of a

companies represented by the financial statements are privately owned, thus mirroring the borrowers in the portfolios of bank statement contributors.1 Bankers looking for working capital data on large, publicly traded companies find CFO’s annual work-ing capital survey useful. The survey compiles data on working capital efficiency at public

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More Articles on Enterprise Risk Management …

Many companies around the world are currently using this technology—or other nonlinear decomposition approaches—for scenario-based forecasting of revenue and losses and for stress testing. By combining a scenario-based forecasting engine with a Monte Carlo sce-

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Cash Flow Analysis

theoretical nuances for obscure kinds of companies. However, I believe it is the first to result in a sim-ple, easily used format designed specifically to help commercial lenders in the real world focus quickly on lending opportunities.

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Current Fraud Management Techniques in Consumer Lending

companies have developed a num-ber of fraud-prevention tech-niques to deal with the additional risks of online transactions. One such technique is the use of card verification value 3, which requires the customer to provide the three digits found on the reverse side of the credit card before initiating a transaction. (American Express

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New Goodwill Guidelines: Impact On Financial Ratios

Although both companies show a small increase in the pro-forma ratio for 2002 compared to 2001 indicating a proportionately higher increase in debt than stockhold-ers’ equity, the adoption of SFAS No. 142 causes a sig-nificant increase in AOL Time Warner’s actual …

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Customer Service: It Starts at Home

74 The Journal of Lending & Credit Risk Management February 1998 Customer Service: It Starts at Home by Herb Kelleher C ustomer service has been a passion for me and for Southwest Airlines for a very, very long time.

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ANNUAL STATEMENT STUDIES

*General Industries Format means that a valid construction NAICS was assigned to the subject companies contained in the sample; however, the financial statements were prepared using a general or traditional manufacturing or service industries presentation of results versus using a percentage-of-completion method of accounting.

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An Overview Of Covenants In Large Bank Loans

companies and 162 (68.1%) have public debt outstanding. Most of the loans in the sample are syndi-cated; the average number of lenders per loan is 12.3. Sixty-two different banks serve as lead agent in the 238-loan sample. The average maturity of the loan sam-ple is 47.44 months. All of the loans in the sample are senior. The majority of the

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A Written Policy for Lending to Contractors

extend any credit to companies defined as contractors in the following paragraphs. Further, contractor requests with policy exceptions will require the concurrence of credit policy officers authorized to concur on contractor requests. Policy exceptions.Certain red flags in lending to contractors have been identified as policy exceptions. A

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Credit risk management in an asset-based lending environment

financing include companies in cyclical industries and newer firms lacking a sufficiently long operating history to qualify for conventional bank financing. While the quality of the borrower is important—liquida-tion of the collateral is never seen as the primary source of repayment on the loan—an asset-based lender focuses on the quali-

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Valuing the Risk Management Function

littered with companies whose market caps have been decimated. And in many respects, they are the fortunate survivors. Corporate America is littered with the carcasses of dead companies that took big risks in search of big returns. This carnage has created an environment of zero tolerance for fiscal surprises of any kind—witness the

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Crafting a Market Landscape

investment grade companies have entered the credit markets in 34 The Journal of Lending & Credit Risk ManagementFebruary 2000 Crafting a Market Landscape Quantitative vs. Judgmental Credit Risk-Rating Systems by Ivo Antonov QUANTIFYING RISK C redit risk-ratings allow banks to estimate the risk of loss from a borrower’s failure to pay as promised.

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Determining DSC for Subchapter S Corporations, Limited

Companies, and Other Small, Privately Held Companies by Robert B. Davidson and Annette R. Larabee SMALL BUSINESS LENDING E arnings reporting practices of smaller, nonpublic companies often result in a lowered or insufficient debt service coverage ratio and the appearance of increased leverage. The numbers can be less than appealing when arrived

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Credit Portfolio Management

companies, asset managers, and hedge funds. If commercial banks want to realize the full benefit of these practices, they must over-come formidable obstacles. Overcoming these obstacles will require collaborative interaction with legislators, regulators, and standard setters. Failure to over-come these obstacles will cause commercial banks to focus

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PRODUCT: 640849 JOIN. ENGAGE. LEAD.

In addition, emerging companies generally possess entrepreneurial management and may lack experienced management in all of the core competencies needed to operate a company. Financial products and services required by companies in the emerging stage include: • Equity type financing (venture capital, private placement, etc.) due

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Placing credit portfolio management

companies where the details gov-erning the loan agreement are not publicly available. In general, private-side portfolio managers will have a better understanding of portfolio risks when private companies are involved. However, a significant exchange of trading flexibility may be required to obtain the aforemen-tioned advantages. Thus, while

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Commercial Real Estate Stress Testing

related companies or principals, expiring leases with anticipated increases in revised agreements, outside sources of income, and new tenants occupying the space. Loans that exhibit calculated weaknesses in the various testing process and that do not have some type of mitigating support will be of greater concern to manage-ment. Testing results

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Body of Knowledge – Canadian Edition

companies and venture capitalists usually supply such capital. This is especially true in companies with one or just a few products, all of which are at the same stage of development. In addition, emerging companies generally possess entrepreneurial management and may lack experienced management in all of the core competencies

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Lending to ESOPs: Of a Different Color, This Horse Still Races

companies, and lenders receive strong yields for substantially risk-free credits. There are more than 10,000 of these plans in the U.S. today, in almost every industry imaginable. They’re in private companies with values below $1 million, and in multi-billion-dollar public compa-nies, like United Airlines. All in all, there are nine million

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Construction Lending on Low Income Housing Tax Credit

Construction Lending on Low Income Housing Tax Credit Multifamily Projects F by Francis W. Wankowicz inancing Low Income Housing Tax Credit (LIHTC) project construction offers lenders the opportunity to underwrite

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The RMA Guide to Spreading Financial Statements

tive to the borrower’s peer companies. Spreading financial statements in ac-cordance with RMA guidance allows for accurate comparisons between the com - pany that you’ve spread and the ratios in the RMA Statement Studies. It also signals potential issues that should be addressed in the underwriting and structuring of a loan.

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Insurance Requirements for SBA Loans

vided by companies with an A.M. Best Guide rating of at least “A.” Also, consideration must be given to requiring an A.M. Best Financial Size category of “IX” (nine) or greater. To ensure that it has control of the proceeds, the institution must be designated as the mort-gagee/loss payee on hazard insurance policies. Evidence of Insurance

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Lending to Commodity Traders

Trading companies undertaking transactions with greater levels of risk, such as those involving com-modities with high price volatility, implicitly place greater demands on their trading capabilities and on the firm’s equity cushion for absorbing losses. Examples of greater demands on the firm’s trading capa-bilities include expertise in

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Ten Questions to Ask Before Making a Seasonal Loan

Companies with seasonal business patterns need additional cash during peak sales periods for such items as accounts receivable, inventory, labor, or operating expenses. The loan is repaid with the income generated during the period. • Service companies may use seasonal loan pro-ceeds to pay expenses such as wages and labor.

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R O M R I C T O C I C S

With revenue for these companies forecast to grow at an average annual rate of 9.4%, to $291.9 billion, over the five years to 2016, more operators will enter the market. As a result, the number of e-tailers is expected to grow at an average annual rate of 2.3%, reaching 58,453 within five years. Because of the tremendous growth and appeal among

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ACCOUNTING ISSUES E-B-I-T-D-A

extreme for companies in near bankruptcy. With time, the con-cept was increasingly applied to companies with long-lived assets.6 EBITDA became the method of choice for highly leveraged companies in cable and media, for which after-tax profits were infre-quent and book losses were com-mon. Investors, creditors, and ana-lysts found negative numbers

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Stress Testing Appraches and Outcomes

For many companies that use internal spreading systems, it may be possible to extract this from your own databases. At this point it is a good idea to step back and ask yourself if you have consid-ered the industry or whatever the relevant concentration is and have forgotten covariant or correlated risks that may apply. It may be reasonable, for

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A Consistent, Global

risk of borrowers and facilities. It also is a dynamic process, subject to continuous refinement based on cutting-edge research, both inter-nal and external, from industry

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Assessing PD and LGD of Construction Loans

is an independent real estate, research, and consulting firm that works with fund managers, REITs, investment banks, commercial banks, pension funds, insurance companies, and private capital sources to help them meet their portfolio performance and risk management objectives. Commercial Real Estate by George Pappadopoulos fundamental question in

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ANNUAL STATEMENT STUDIES

All types of statements/companies are welcome: • All industries—all NAICS/SIC codes. Please note: We will be accepting both 2012 and 2017 NAICS, and will be able to merge any 2012 NAICS to its 2017 NAICS. • All asset or sales sizes. • All loan grades or risk ratings.

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Risk-Grading Philosophy: Through the Cycle versus Point in

companies in that industry, size group, etc., and assign a RG according to PD range. But trying to “look through the cycle” as a company’s performance fluctu-ates—more in the spirit of Basel—is a challenge. It involves separating cycli-cal influences from those that are secular (i.e., longer-term trend) or sea-sonal, separating system-

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Fuzzy Systems and Neuro-Computing in Credit Approval

oped a system that selects companies for potential acquisitions, using lan-guage stock traders understand. An international investment company is using a combined fuzzy logic and arti-ficial neural network system (FuzzyNet) to forecast the expected returns from stocks, cash, bonds, and so forth, to determine the creditworthi-

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TRICKS OF THE TRADE

companies represented in the $25MM & Over column. To derive the average sales size of the companies in this column, we simply divide total net sales by the number of companies, 77,737,447M/675. The result is an average sales size of $115,166,588. What if you happen to be analyzing a company whose sales size is $25 mil-lion?

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How to Identify and Evaluate Industry Risk in a Loan

First Union uses companies like WEFA4 to provide industry infor-mation that can be used in the defi-nition of sector stability/volatility. The vendors can supply historical information and forecasts by indus-try on growth in real revenues, sales, gross operating margins, and labor and material costs, for exam-ple. Some vendors also can provide

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Using Subordination to Define Intercreditor Priority

shows how three companies employed these techniques in recent transactions. Bondholders Agree to Let Bio-Rad Repay Loans First Bio-Rad Laboratories is a life sci-ences company with annual sales of more than $1.7 billion. In May 2009, it issued $300 million of seven-year notes in a 144A offer-ing through Credit Suisse. The

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Linking RAROC To Strategic Planning

services companies can improve strategic planning decisions. Combining the Best of Two Disciplines The task at hand is to develop a comprehensive planning methodology for a financial institution. The best way to do this is to combine the principles of risk management with those of shareholder analysis. Each

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Surety bonding in today's construction market

companies, and both surety bonds and traditional insurance policies are risk-transfer mechanisms regu-lated by state insurance depart-ments. However, insurance and bonding operate on different busi-ness models. Traditional insurance is designed to compensate the insured against unforeseen,

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How much debt can a borrower afford

companies with cyclical sales and high fixed costs, such as highly automated, capital-intensive durable goods manufacturers, can afford less debt. Operating and Financial Leverage Our SCI example illus-trates two types (stages) of leverage: operating leverage and financial leverage. Operating (first stage) lever-age is the magnifying effect

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Credit Risk N.aThe .m

limited liability companies, or limited partnerships. Let’s look at some cases to get a sense of just how critical the borrower’s correct name is to successful perfection of your bank’s lien position. Business Borrowers: What’s in a Name? Example #1 K.W.M. Electronics Corporation was a manufacturer and as - sembler of electronic goods.

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Spending Plummets during the Recession

industry completely, while larger companies closed un-profitable locations and focused on boosting margins at surviving ones. As a result, IBISWorld estimates the number of companies in the hobby and toy stores industry fell from 21,782 in 2007 to 19,133 in 2012, representing an average decline of 2.6% per year. Similarly, the total number of store

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Lending to Automobile Dealerships: Credit Risk Management

ed auto-finance companies to be better equipped to understand these issues. However, the banking industry still represents a signifi-cant portion of lenders in the auto - motive segment and, as a result, must be able to comprehend this information in order to make sound credit decisions going forward. Lenders who have not been

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