Lender to call the loan before financial troubles

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lender to call the loan before financial troubles grow) ~Iinimum equity (to limit treasury stock repurchases that would erode firm equity) _laxirnum debt-to-equity or debt-to-assets (to limit the borrower's leverage and ensure long- o rm solvency) -"- .... ••• anies rarely disclose details about their loan covenants. For example, Home Depot reports . llowing in footnotes to the financial statements: "The credit facility expires in July 2013 and :=:;;.illlS various restrictive covenants. As of January 30,2011, we were in compliance with all of 00 enants, and they are not expected to impact our liquidity or capital resources." EDIT RATINGS it rating is an opinion of an entity's creditworthiness. The rating captures the entity's . to meet its financial commitments as they come due. In the U.S., a number of firms ide credit ratings and each firm has its own unique method to arrive at a rating. But the it analysis methods they apply are similar: credit analysts at the rating agencies evaluate L04 Describe the credit rating process and explain why companies are interested in their credit ratings.
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4-23 Module 4 I Credit Risk Analysis and Interpretation financial and nonfinancial data in a manner explained in this module. The analysts consider macroeconomic, industry, and firm-specific information to assess both the chance of default and the ultimate payment in the event of default. Analysts calculate ratios and consider credit terms, such as collateral security and subordination. In the end, they arrive at a rating from their analysis that reflects both the likelihood of default and any financial loss suffered in the event of default. Credit rating agencies provide ratings on both debt issues and issuers. An issue rating is an opinion about whether a particular debt security will be repaid. The types of debt securi- ties that the rating agencies cover is broad and consists of a wide variety of other debt issues including debentures, asset-backed and mortgage-backed securities, convertible bonds, short- term bonds, medium-term notes, preferred stock, and derivative securities. The credit agencies C also provide ratings for specific debt issuers. An issuer rating is a comprehensive opinion of an entity's ability to meet obligations. Agencies provide issuer ratings for corporate families, sovereign nations, municipalities, other public finance issuers, and derivative instrument counterparties. In early 2006, Home Depot's credit ratings were strong. Moody's long-term rating was Aa3 for Home Depot and S&P's short-term rating was A1+. Both agencies opined that the company was high-grade. However, within two years, both agencies had changed their outlook to "negative" citing recent acquisitions and the deterioration of credit quality resulting from higher financial leverage and decreasing profitability. Much of this was due to the severe drop off in home construction and renovation during the credit crisis of 2008. However, during 2010 and 2011, business began to rebound and by the end of 2011, Home Depot's long-term bond ratings were medium grade: A3 (from Moody's) and A- (from S&P and Fitch).
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