Financial guarantees reduce borrowing costs

Article Abstract:

Standby letters of credit are financial guarantees that are also known as credit enhancements; these documents involve the document issuer (usually a bank), the customer requesting the document (usually a borrowing corporation), and the institution lending the funds. The standby letters of credit reduce the borrower's cost of funds and protect investors from downgraded credit ratings. In 1985, there were $150 billion worth of standby letters of credit outstanding, as compared to $47 billion outstanding in 1980. Such letters of credit may be tied to the insurance industry's increased presence in investment markets, but the financial guarantees are also associated with public trading of tax-exempt bond issues. The growing use of standby letters of credit is analyzed, and the laws affecting their issuance are related to banks' off-balance sheet risk.

Interpretation and construction, Finance, Corporations, Letters of credit, Corporate finance, Bank loans

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Credit Analysis: How to Distinguish Between a Fast- Growing Firm and One that Is Dying

Article Abstract:

Creditors can distinguish between growth firms and dying firms by performance of certain key indicators. The growth company will show an overall positive pattern in earnings, risk, flexibility, and cash flow. The dying firm's financial statement will give off negative signals in these areas. Both types of firms will need, and be short of, cash. Earnings alone would not be sufficiently informative. Evaluating the economic condition of a company is essentially the process of evaluating the underlying cash flows. The nature, source, quality, quantity, and timing of future cash flows is the key to the economic survival of the business. Excluding the past and predicting the future is a process of accumulating information and using it in a mathematical, judgmental, or unknown model.

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Chapter 11: Why sit on a creditors committee?

Article Abstract:

Credit managers are frequently asked to sit on creditors committees for corporations that have filed for Chapter 11 protection, in order to reorganize their operations in an effort to preserve their property ownership, avoid liquidation, protect the interests of their creditors, and restructure their finances. Two issues that credit managers must decide prior to serving on a creditors committee are: (1) the impact of the bankrupting customer in comparison to other accounts receivable owed to the credit manager's corporation, and (2) the percentage of the bankrupting customer's receivables the credit manager is likely to recover. Reasons for serving on a creditors committee and the responsibilities of such committees are discussed.

Corporate reorganizations, Priorities of claims and liens, Bankruptcy, Assignments for benefit of creditors

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