Credit Risk of Commodity Companies

Fitch Learning
Course summary
2 days
2,295 GBP excl. VAT
Online courses
Next available date: 08/11/2021 - Online courses
Professional Training

Course description

Credit Risk of Commodity Companies

The purpose of this course is to enhance credit skills and equip participants with tools and techniques to understand a commodity processor or trader's commercial and financial viability and to appreciate the key credit, market and country risks which occur in commodity processing and trade transactions.

Live Online Training

Since 2003, Fitch Learning’s industry experts have been delivering world-renowned virtual training programs to learners across the globe. Benefits include:

  • World-class video conferencing technology
  • Fully interactive, engage and network with peers using break out rooms, quizzes and polls
  • On-hand technical support team throughout
  • Attend from anywhere, across four time zones
  • Save time and costs on travel

Suitability - Who should attend?

Anyone with an interest in building or further enhancing their analytic skills of commodity processors and traders. Financial professionals in a credit risk, asset investment or relationship management role, as well as those engaged in the assessment of counterparty risk from an underwriting viewpoint or trade debtor exposure. Regulators or those in a supervisory role with an interest in understanding the underlying credit assessment needed in the organizations or departments they assess. Participants are expected to be familiar with corporate financial statements. We provide a separate Fundamentals of Corporate Financial Statement Analysis course that can be followed to refresh or introduce the main concepts of financial statements and ratios.

Outcome / Qualification etc.

Credits: 16 CPD pts.

Key Learning Outcomes:

  • Apply a structured approach to assess the creditworthiness of a commodity trader or processor.
  • Evaluate the performance of a commodity company using qualitative and quantitative frameworks and tools.
  • Assess credit risk exposures to commodity companies by appraising short term liquidity of trading operations as well as longer term ability to service debt for processing or storage activities.

Training Course Content

Day One

Analytic Framework

Introduction of the four-step approach to any risk exposure: Purpose of transaction, sources of repayment, risks to repayment and structure of financial exposure needed to safeguard repayment.

  • Distinguishing pure traders, processors, integrated traders, finance and holding companies
  • Identification of which stage of the business cycle is being financed
  • Sources of repayment for commodity producers and traders
  • Application: Identification of purpose, payback, risk analytic focus and structural elements of exposure

Commodity Processing and Trading Sector

Key macro considerations when assessing the sector and operating environment in countries where commodities are sourced, processed and sold.

  • Country and sovereign risk including systemic governance and political influence and currency fluctuations
  • Application: Distinguish strong and weaker countries
  • Energy, agricultural (“soft”) and metal and mining (“hard”) commodities: Demand, production, price volatility, quality and logistics

Management and Ownership

The role and strategy of the management team as well the influence and control of shareholders or partners are assessed.

  • Management’s business and financial strategy and performance goals
  • Corporate governance and reporting structure
  • Group structure, use of joint ventures and ultimate ownership
  • Quality of financial reporting and risk management
  • Example of past mistakes
  • Application: Illustration case study provided as pre-course material

Business Profile

Understanding a commodity trader/processor business strategy in the context of sector, country of operation and shareholder requirements.

  • Diversification of commodities and geographical suppliers and end markets
  • Competitive position and operational scale and vertical integration
  • Market access, operational structure and asset ownership
  • Application: Recognize players in the commodity sector with different business profiles

Financial Profile – Assets and Profitability

Assessment of the asset investment need, and quality and stability of earnings and cash flows from operations (‘Business Risk’).

Asset Investment and Efficiency

  • Working capital management, cash conversion cycle and supplier finance
  • Trading cycle and different stages: Sourcing, transporting and warehousing
  • Application: Accounting and financing different stages of the trading cycle
  • Net working assets: Readily marketable inventories, trade debtors and creditors
  • Processing, storage and transport assets: Expansion or replacement asset investment in on-balance sheet fixed and intangible assets
  • Industry specific utilization measures and off-balance sheet assets such as energy reserves

Earnings and Cash Flow

  • Commodity prices impacting revenues: Focus on volumes and gross profitability; Reflection of level of vertical integration on profitability.
  • Impact on performance by non-operating items.
  • Looking beyond EBITDA at sustainability of funds flow from core operation – before changes in working capital.
  • Application: Assets and Profitability: Illustration case study using additional financial ratio and sector peer information.

Day Two

Financial Profile – Funding Structure and Financial Flexibility

Evaluation of the appropriateness of a company’s funding structure and ability to service its financial obligations (‘Financial Risk’).

Capital Structure and Funding Instruments Used

  • Financial discipline and dependency on external financing
  • Importance of seasonality and timing of financial year end on reported debt
  • Funding instruments used, tenor, currency of the debt and any off-balance sheet financial obligations
  • Commodity trader adapted financial leverage measures and comparison with the business risk from operations in the industry

Financial Profile – Financial Flexibility

  • Market risk exposure, hedging strategies and potential impact on cash flow and debt servicing capability
  • Refinancing risk and liquidity: Ability to meet short-term financial obligations as they fall due from current operations
  • Application: Assessing the liquidity of a commodity trader-processor
  • Long term debt service capability for commodity processors
  • Application: Assessment the capital structure and debt service capability for two commodity related companies using financial measures
  • Application: Illustration case study using additional financial ratio and sector peer information

Structure of Commodity Based Lending

Overview of main elements of commodity finance. This topic is not covered in detail as the focus of the course is the counterparty risk analysis.

  • Structured commodity finance: Pre-export, supply chain, factoring, countertrade, inventory finance
  • Example: Warehouse financing
  • Ranking: Different ways to achieve seniority or pari passu ranking vs. other capital providers
  • Safeguards: Risk and mitigants in commodity finance
  • Pricing fundamental for long term debt issuers: Bond and loan prices

Case Study Application

Throughout the programme a case study is being used – using a well-known commodity processor and trader to illustrate the learning objectives.

Why choose Fitch Learning

9 in 10 would recommend us to a colleague

Over 1,300 clients worldwide

CPD recognized

Continuing Studies

Completion of this course can lead into:

  • Fundamentals of Corporate Financial Statement Analysis – providing an introduction/refresher of key accounting and financial analysis concepts.
  • Corporate Credit Analysis - a comprehensive program covering general corporate credit risk analysis focusing on a variety of non-financial sectors.
  • Corporate Rating Methodology – corporate credit risk analysis with a pure focus on the Fitch Rating Methodology.
  • Leveraged Finance and High Yield Credit Risk - assessment of sub-investment grade borrowers.
  • Intensive Bank Analysis – credit risk analysis of exposure to banks.
  • Insurance Company Analysis - credit risk analysis of exposure to insurance companies (life and non-life).

About provider

Fitch Learning

Live Online Training Since 2003, Fitch Learning’s industry experts have been delivering world-renowned virtual training programs to learners across the globe. Benefits include: World-class video conferencing technology  Fully interactive, engage and network with peers using break out rooms, quizzes and...

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17th Floor, 25 Canada Square
E14 5LQ Canary Wharf London

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