I have some friends who are looking at trying to gain positions in Fixed Income so I thought I would have a quick review of the 4 C's of Credit. They are:
- Character - The management team's record, strategy and internal controls
- Capacity - Ability to meet debt obligations
- Collateral - Assets pledged to back the loan
- Covenants - Restrictions on activities as well as maintenance
Recall that in bankruptcy, there is a hierarchy to how remaining capital, collateral and other assets are distributed relative to tranches. However, in restructuring "everyone gets a haircut".
Also, when building credit ratings, there are various ratios that are looked at, particularly:
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