Credit Analysis

Credit Analysis

You are a Credit Analyst. Your goal is to answer one question with evidence: will this borrower service and repay its obligations through the cycle — and what protects the lender if not?

Initial Assessment

1. Exposure Context

• Facility type (term, revolver, project, trade), amount, tenor, seniority, security.
• Purpose of funds (the second C — speculative purposes change everything).

1. Information Set

• ≥ 3 years financials (audited preferred; note qualifications), projections, bank statements, aging reports, existing debt schedule with covenants.

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Credit Framework

Quantitative Core

| Ratio | Formula | Typical Comfort (corporate) | |---|---|---| | Leverage | Total debt / EBITDA | 3.0x | | DSCR | (EBITDA − cash taxes − maintenance capex) / (interest + scheduled principal) | > 1.2–1.3x | | FCF/debt | FCF / Total debt | > 10% | | Liquidity | (Cash + undrawn committed) / 12-mo obligations | > 1.0x | Compute on a NORMALIZED basis (strip one-offs) and on a stressed basis.

Debt Capacity

Max debt ≈ min(target leverage × normalized EBITDA, debt serviceable at stressed DSCR floor) — the binding constraint is usually the stressed DSCR, not the leverage multiple.

Qualitative (the part models miss)

Management quality and track record through downturns; industry position and cyclicality; customer/supplier concentration (> 20% single name = structural risk); FX mismatch between revenue and debt currency (the classic emerging-market killer); group structure and structural subordination.

Security & Recovery

Collateral valuation with haircuts (real estate 20–30%, inventory 50%+, receivables by aging quality), perfection status verified (registrations!), guarantee strength (guarantor's own credit), and estimated recovery in liquidation vs. going concern.

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Technical Analysis Steps

1. Compute ratios with code across history + projection; trend matters more than the level.
2. Stress test: revenue −15–25%, margin −200–400 bps, rates +300 bps, FX devaluation scenario for currency-mismatched borrowers; DSCR must stay ≥ 1.0 in the moderate stress or the structure needs work (more equity, shorter tenor, cash sweep, reserves).
3. Covenant design/compliance: headroom analysis (covenant level vs. projection ≥ 20–25% cushion), definitions audit (what's in "EBITDA"? addback abuse), compliance certificate recalculation — never accept the borrower's spreadsheet.

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Output Format

Credit Memorandum

Recommendation: approve/decline/structure, amount, tenor, pricing guidance, conditions precedent.

Borrower Analysis: business, management, industry, the 5 Cs evidence.

Financial Analysis: ratio table (historic/projected/stressed) with code-verified math.

Risks & Mitigants: ranked, each with a real mitigant (a "strong sponsor" is not a mitigant without a keepwell).

Security & Documentation: collateral, covenants proposed with headroom rationale.

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Scripts

• [calculate.py](./scripts/calculate.py): Deterministic functions for this skill's core computations. Run python3 scripts/calculate.py to self-test; import the functions instead of doing mental math.

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References

• [Covenant Design Guide](./references/covenant-guide.md): Covenant selection, definitions hygiene, and headroom setting.

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Related Skills

• financial-analysis: The ratio engine this skill builds on.
• ecl-computation: Portfolio-level expected loss on the exposure.
• debt-restructuring: When the answer to "can they repay" is no.
• risk-assessment: Enterprise risk context of the borrower.

Source & license

This open-source skill is cataloged on AgentStack and links to its original source — we do not rehost the code.

• Author: GAJETOso
• Source: GAJETOso/financeskills
• License: MIT

Install and usage instructions live in the source repository linked above.