hard · Corporate Credit Analysis
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 because the contract provides visibility
- Focus on 'concentration risk' and the 'counterparty quality' of the anchor contract
- Average the leverage ratio to 2.5x by assuming the contract is replaced
- Ignore the counterparty as long as the 5.0x leverage ratio is stable today
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