CFA Level I · CFA Level I Exam · Credit Analysis for Corporate Issuers
Compared with investment-grade issuers, high-yield corporate issuers are most likely to require credit analysts to place greater emphasis on:
Analysts of high-yield issuers most likely emphasize liquidity, cash flow coverage and covenant protections. Because default risk is higher, the ability to meet near-term debt obligations and the legal protections available to creditors matter more than brand strength or dividend stability.
- Aliquidity, cash flow coverage and the covenant packageCorrect
- Bthe issuer's brand recognition and market share
- Cthe stability of the issuer's dividend payments
Explanation
High-yield issuers have a higher default probability, so analysts focus on liquidity sources, cash flow coverage, the terms of covenants and the likely recovery in default. Brand and dividends are secondary to the ability to service debt.
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