Leeds School of Business
MBAX 6260 – Fixed Income – Spring 2019David M. Gross, Ph.D.Assigned HW 04: Bond Credit Analysis Assignment Part 1Due Tuesday April 9 at the start of class.The goal of this assignment is to get a flavor for corporate credit analysis. We will follow the structure outlined in the text and use the Bloomberg terminal to aid in much on this analysis. Please complete the assignment by answering the questions below and submit a printed document with your written results. Your grade will depend on both the content and clarity your report.Choose a company with debt.Part 1: Company OverviewLogon to a Bloomberg terminal and type “TICKER SYMBOL <Equity> <GO>”You will get the main menu for your company. Type “DES <GO>”Page 1 is the Company Profile. Use the information on this page to answer the following questions. In a short paragraph, describe the company’s business.What is the name of the CEO?What is the current price of company’s common stock, its market capitalization and its annualized dividend?Type SPLC <GO>. This is the Supply Chain Analysis page. The column on the right shows the company’s largest customers. Name your company’s top 5 customers and the total percentage of revenue derived from these top 5 customers. Comment on the concentration or diversity of the company’s sources of revenues.Part 2: Bond OverviewType “TICKER SYMBOL <Corp> <GO>”You will get a list of the company’s bondsSelect a bondType “DES <GO>”Page 1 (also shown as page 11 in the box on the left) is Bond InfoWhen was the bond issued? When does the bond mature?What amount of face value of the bond was issued? What amount of face value of the bond is still outstanding?Page 2 (also shown as page 12 in the box on the left) is Additional Info.Click “12) Addtl Info” in the box on the left or page down or type “12 <GO>” to see this information.What does this page show as the “use of proceeds?”A current quote can be found by clicking “ALLQ Pricing” (Number 32) under Quick Links on the left. We will use the “BVAL” (Bloomberg Value) quotes. These should be in the second row.Find the BVAL bid and ask prices (“Ask Px” and “Bid Px”) Find the BVAL bid and ask yields Use the ask price quote (“Ask Px”), the date you looked up the price, the bond’s information and the Excel =YIELD() function to compute the YTM for the bond. (Be sure to use the correct day-count convention for a corporate bond.)Use the date you looked up the price and the coupon date and coupon rate to compute the accrued interest and the “dirty price” for the bond. Compute the yield spread (the difference between bid and ask yields) for this pute the dollar spread (the between the ask price and the bid price) for this bond.Use the correct Excel function to compute the Mod D for your bond. TDH Trade History (Number 34 under Quick Links on the left) shows the last trades for the bond.Change the ”Size” box on the near the top on the right to "All Sizes”Change the date range to 01/01/2019 to Today’s dateHow many total trades occurred since the beginning of the year?How many total bonds were traded in 2019?Go to the Yahoo Finance page for your stock.Click “Historical Data”Change Frequency to Monthly and then click “Apply.” The last column is volume.What was the total volume of the common stock traded in 2019? Compare this bond volume.Page 16 is bond ratings.What are the Moody’s and Standard and Poor’s default ratings for this bond?What is the S&P Recovery Rating for this bond?When were these ratings issued? Go to the Wikipedia credit rating page. Scroll down to the large Credit Ratings table under the “Corporate credit ratings” section. This table ranks the ratings for each rating agency and gives a brief description in the far-right brown column. Is this an investment grade or non-investment grade bond?Compare the ratings for the two agencies. Are the equivalent? What are the descriptions for the ratings?Go to the S&P 2017 Annual Global Corporate Default Study and Rating Transitions. Scroll down to Table 20 starting on page 51 and continuing on to page 52: “2017 One-Year Corporate Transition Rates By Region (%)”.Determine the percentage of U.S. bonds that transitioned from your bond’s rating to either D or unrated (“NR”). This is a reasonable measure of default probability.Go to the “S&P Recovery Rating Performance” document on the course website. Scroll down to Table 1 on page 3: “Average Actual Recoveries To Recovery Ratings”.Determine the Average actual recovery percentage for a bond with a recovery rating at origination equal to your bonds rating. Calculate the default loss rate for this bond.Next, for Assigned HW 05, we will perform a credit analysis:Analysis Collateral Haircutting assetsAnalysis of Ability to PayAnalysis of Business RiskCyclicality. We will look at Beta. Degree of Operating Leverage (DOL)Corporate Governance RiskFinancial RiskLeverageCash flowsInterest Coverage ................
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