AutoSave OFF Corp CreditAnalysis Hardware Hawaii Question.xltx - Compatibility M Home Insert Draw Page Layout Formulas...

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AutoSave OFF Corp CreditAnalysis Hardware Hawaii Question.xltx - Compatibility M Home Insert Draw Page Layout Formulas Data Review View Tell me Arial 10 ' ' ab Wrap Text General Paste B I U Merge & Center $ % 9 0 00 0 Conditional Formatting D23 A B 1 2 C fx D E F G H | J K L M N Hawaii Mill Hardware (in US$ Millions) Corporate Credit Analysis 3 2019 2020 Ratios for 2020 4 ST Debt 60 60 Debt/(Debt + Equity) 56% Approximate Rating BB 5 LT Debt 50 30 6 FCF/Debt 7 Common Stock 20 25 8 Retained Earnings 55 45 FFO/Debt 9 10 Interest Expense 6 11 Tax Expense 3 12 Net Income 10 13 Depreciation Exp 15 14 CF from WC changes -10 15 CF from Capex -10 16 Cash on B/S 20 17 18 Total Debt 110 19 Total Equity 75 20 Total Capital 185 160 21 Average Capital 172.5 5115252 2263 EBIT/Average Capital -1 -1 EBIT/Interest Expense 20 -5 90 70 Debt/EBITDA Notes 1) Company has been in business over 100 years 2) 2020 is only the 4th time the company lost money. 3) Company has been a very good customer of the bank for 50 years. You are their main bank 4) Your bank currently has $15 million of credit risk exposure to Hawaii Mill. Questions 22 23 FFO 24 CF Ops 25 FCF 26 EBIT 27 EBITDA 28 29 30 31 32 1) What is your LT debt rating for Hawaii Mill? 2) In addition to the above ratios, what other factors (pros and cons) would you incorporate into your analysis of Hawaii Mill's credit strength? (factors can be financial, market, econ, etc) 3) Assume you are under the current Coronavirus situation, Hawaii Mill is asking for a 5 year loan for $10 million to shore up its finances. Would you make the loan and why? If so, what interest rate would you charge? What conditions (covenants) would you add to the loan agreement? What additional information would you like to see? 33 34 35 26 Hardware S&P Ratios + Excel File Edit View Insert Format Tools AutoSave OFF Data Window Help Corp CreditAnalysis Hardware Hawaii Question.xltx - Compatibility Mode Tell me Home Insert Draw Page Layout Formulas Data Review View Arial 10 Paste B I U Conditional Formatting General Format as Table $ % 9 .0 Cell Styles Ple 026 fx A B C D E F G H J K L M N P 1 2 3 4 Table 1-Key Industrial Financial Ratios, Long-Term Debt Three-year (2002 to 2004) medians 6 AAA AA A BBB BB B CCC 7 8 EBIT interest coverage (x) 23.8 19.5 8.0 4.7 2.5 1.2 0.4 9 EBITDA interest coverage (x) 25.5 24.6 10.2 6.5 3.5 1.9 0.9 10 11 FFO/total debt (%) 203.3 79.9 48.0 35.9 22.4 11.5 5.0 12 Free operating cash flow/total debt (%) 127.6 44.5 25.0 17.3 8.3 2.8 (2.1) 13 14 Total debt/EBITDA (x) 0.4 0.9 1.6 2.2 3.5 5.3 7.9 15 Return on capital (%) 27.6 27.0 17.5 13.4 11.3 8.7 3.2 16 17 Total debt/total debt + equity (%) 12.4 28.3 37.5 42.5 53.7 75.9 113.5 18 19 20 21 Table 2-Key Utility Financial Ratios, Long-Term Debt 22 23 Three-year (2002 to 2004) medians 24 AA A BBB BB B 25 26 EBIT interest coverage (x) 4.4 3.1 2.5 1.5 1.3 27 28 FFO interest coverage (x) 5.4 4.0 3.8 2.6 1.6 29 Net cash flow/capital expenditures (%) 86.9 76.2 100.2 80.3 32.5 30 FFO/average total debt (%) 30.6 18.2 18.1 11.5 21.6 31 32 Total debt/Total debt + equity (%) 47.4 53.8 58.1 70.6 47.2 33 Common dividend payout (%) 78.2 72.3 64.2 68.7 (4.8) 34 35 Return on common equity (%) 11.3 10.8 9.8 4.4 6.0 36 37 38 39 D X 1 D A AutoSave OFF Corp CreditAnalysis Hardware Hawaii Question.xltx - Compatibility M Home Insert Draw Page Layout Formulas Data Review View Tell me Arial 10 ' ' ab Wrap Text General Paste B I U Merge & Center $ % 9 0 00 0 Conditional Formatting D23 A B 1 2 C fx D E F G H | J K L M N Hawaii Mill Hardware (in US$ Millions) Corporate Credit Analysis 3 2019 2020 Ratios for 2020 4 ST Debt 60 60 Debt/(Debt + Equity) 56% Approximate Rating BB 5 LT Debt 50 30 6 FCF/Debt 7 Common Stock 20 25 8 Retained Earnings 55 45 FFO/Debt 9 10 Interest Expense 6 11 Tax Expense 3 12 Net Income 10 13 Depreciation Exp 15 14 CF from WC changes -10 15 CF from Capex -10 16 Cash on B/S 20 17 18 Total Debt 110 19 Total Equity 75 20 Total Capital 185 160 21 Average Capital 172.5 5115252 2263 EBIT/Average Capital -1 -1 EBIT/Interest Expense 20 -5 90 70 Debt/EBITDA Notes 1) Company has been in business over 100 years 2) 2020 is only the 4th time the company lost money. 3) Company has been a very good customer of the bank for 50 years. You are their main bank 4) Your bank currently has $15 million of credit risk exposure to Hawaii Mill. Questions 22 23 FFO 24 CF Ops 25 FCF 26 EBIT 27 EBITDA 28 29 30 31 32 1) What is your LT debt rating for Hawaii Mill? 2) In addition to the above ratios, what other factors (pros and cons) would you incorporate into your analysis of Hawaii Mill's credit strength? (factors can be financial, market, econ, etc) 3) Assume you are under the current Coronavirus situation, Hawaii Mill is asking for a 5 year loan for $10 million to shore up its finances. Would you make the loan and why? If so, what interest rate would you charge? What conditions (covenants) would you add to the loan agreement? What additional information would you like to see? 33 34 35 26 Hardware S&P Ratios + Excel File Edit View Insert Format Tools AutoSave OFF Data Window Help Corp CreditAnalysis Hardware Hawaii Question.xltx - Compatibility Mode Tell me Home Insert Draw Page Layout Formulas Data Review View Arial 10 Paste B I U Conditional Formatting General Format as Table $ % 9 .0 Cell Styles Ple 026 fx A B C D E F G H J K L M N P 1 2 3 4 Table 1-Key Industrial Financial Ratios, Long-Term Debt Three-year (2002 to 2004) medians 6 AAA AA A BBB BB B CCC 7 8 EBIT interest coverage (x) 23.8 19.5 8.0 4.7 2.5 1.2 0.4 9 EBITDA interest coverage (x) 25.5 24.6 10.2 6.5 3.5 1.9 0.9 10 11 FFO/total debt (%) 203.3 79.9 48.0 35.9 22.4 11.5 5.0 12 Free operating cash flow/total debt (%) 127.6 44.5 25.0 17.3 8.3 2.8 (2.1) 13 14 Total debt/EBITDA (x) 0.4 0.9 1.6 2.2 3.5 5.3 7.9 15 Return on capital (%) 27.6 27.0 17.5 13.4 11.3 8.7 3.2 16 17 Total debt/total debt + equity (%) 12.4 28.3 37.5 42.5 53.7 75.9 113.5 18 19 20 21 Table 2-Key Utility Financial Ratios, Long-Term Debt 22 23 Three-year (2002 to 2004) medians 24 AA A BBB BB B 25 26 EBIT interest coverage (x) 4.4 3.1 2.5 1.5 1.3 27 28 FFO interest coverage (x) 5.4 4.0 3.8 2.6 1.6 29 Net cash flow/capital expenditures (%) 86.9 76.2 100.2 80.3 32.5 30 FFO/average total debt (%) 30.6 18.2 18.1 11.5 21.6 31 32 Total debt/Total debt + equity (%) 47.4 53.8 58.1 70.6 47.2 33 Common dividend payout (%) 78.2 72.3 64.2 68.7 (4.8) 34 35 Return on common equity (%) 11.3 10.8 9.8 4.4 6.0 36 37 38 39 D X 1 D A