medium · Debt Capital Markets credit-ratings-risk
Why might a credit analyst view a high gross leverage ratio as a risk even if net leverage is low due to a large cash balance?
- Gross leverage sets the priority ranking of creditor claims in the bankruptcy waterfall
- Cash is an 'unencumbered' asset that can be spent or misused before debt matures
- Net leverage is a metric reserved solely for investment-grade issuers
- Gross leverage is the figure used to compute the firm's periodic cash interest expense
Sign up free to see the explanation and track your rank →
More Debt Capital Markets credit-ratings-risk practice
- In the context of Debt Capital Markets, what is a leverage-based margin ratchet?
- Why is the Administrative Agent's role important for the margin ratchet?
- In Debt Capital Markets, who is generally the 'payer' of the credit spread in a standard b
- What happens to the credit spread of a 'fallen angel' issuer?
- In the expected loss framework, what is the relationship between the Recovery Rate (RR) an
- What is the lowest rating an issuer can hold and still be considered 'Investment Grade' by
- In a Credit Default Swap (CDS), what is the primary obligation of the protection seller?
- What does a 'negative basis' indicate?