hard · Corporate Credit Analysis cca-core
A company has $500M of total debt and $100M of EBITDA, but $60M of that EBITDA comes from a single contract with a CCC+ rated counterparty that expires in 12 months.
How should a credit analyst evaluate this business risk?
- Upgrade the business risk profile, since the contract provides revenue visibility
- Focus on 'concentration risk' and the 'counterparty quality' of the anchor contract
- Average the leverage ratio down to 2.5x by assuming the contract renews as-is
- Ignore the counterparty risk entirely as long as today's 5.0x leverage stays stable
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