To pass this unit (requires a Mark of 50 or better) the student must pass the final examination.

CLASSES

Face-to-Face Teaching: Generally 20 hours

Timetable: Detailed timetable for classes are on the Centre’s web site www.mafc.mq.edu.au

Consultation Times: 

Students who wish to contact any of the teaching staff may do so through:

• The Unit’s iLearn site, in relation to general queries (so that all students may benefit); or 
• Individual consultation with the lecturer by email in the first instance, if necessary.

REQUIRED AND RECOMMENDED TEXTS AND/OR MATERIALS

Text: Recommended: Ciby, Joseph, Advanced Credit Risk Analysis and Management, The Wiley Finance Series, 2013.

Additional Readings: 

• Additional readings are included in the unit notes. Spreadsheets critical to the unit are available on iLearn.
• Students should assume these readings and spreadsheets are examinable unless otherwise advised.

Lecture Notes: Available on iLearn.

Study Problems: 

• Students are required to work systematically through the practice problems. These problems will not be collected but they will help you prepare for the exams.
• Guidelines for answers to the practice problems are included in the unit notes or on iLearn.

Pre-Unit Materials: Information papers on statistics, regression, accounting and other material may be found at http://www.mafc.mq.edu.au/precourse/future_students.htm. Students should work through this material prior to commencing the degree.  The material will remain a useful reference as students progress through the program.

Calculators: 

• A financial calculator that can handle time value of money calculations, logs and power functions is required.
• The Hewlett Packard calculator hp17bII+ is recommended.
• In examinations, hand held calculators are permitted. Mobile phones and computers are not permitted.

Assumed Knowledge:

• The mathematical difficulty of this unit is not greater than in Financial Risk Management
• Students are advised to review the Financial Risk Management notes before beginning this Unit, as knowledge of the credit material from that Unit will be assumed, with limited revision.

Assumed Access:

• Access to a computer with word processing and spreadsheet capability and internet access are assumed, as is general student computer literacy.
• There is some EXCEL modelling work in the unit.

TECHNOLOGY USED AND REQUIRED

Unit iLearn Site: 

• Found by logging on to iLearn ilearn.mq.edu.au, then clicking AFCP856 Credit and Lending Decisions.
• This is where you will find forums, downloadable resources and links to important pages. 
• Forums allow you to communicate with other students and lecturer(s) and may provide supplementary material.
• Please post questions to a forum at least 24 hours prior to the assignment submission date or the examination date. Questions posted after that time may not be answered. Please try to not leave your questions to the last few days.   

Important Notice: 

• It is important that you familiarise yourself with the Unit’s iLearn site. 
• Students should check the Unit’s iLearn site regularly (minimum twice a week and prior to all lectures) and look for updates and distribution of materials (including case studies) related to the unit or assessments and, if relevant, participate in forum discussions. 

SECTION 1. THE DEBT STAKEHOLDER AS AN INVESTOR

Topics: 

• Debt v Equity
• Risk v Reward
• Debt as a Source of Capital
• EL = PD x LGD x EAD

SECTION 2. THE BORROWER & THE LOAN

Topics: 

• Nature of the Borrower
  • Consumer
  • Small/Medium Enterprise
  • Business/Corporate
  • Specialised – Financial Institution, Government, Project
• Nature of the Loan
• Types of Credit and Loans
  • Core debt
    • Capex, Growth, Acquisition
    • Loan, Asset-based finance (Leasing, Receivables acquisition)
  • Seasonal financing
  • Working Capital Facilities (Trade Finance)
  • Guarantees & Performance Bonding
  • Bridging finance
  • Limited recourse/Project financing

SECTION 3. THE PROCESS TO THE CREDIT DECISION

Topics: 

• Understanding the Borrower’s Needs
• Information requirements
• Credit Analysis
  • Translating quantitative and qualitative outcomes into PD
  • Translating Balance Sheet structure, the nature of the business & security into LGD
  • Consideration to Credit Ratings Agencies
• Credit Policies
  • Maximum PDs
  • Minimum LGDs
  • EADs – redrawing & derivatives exposure
• Formulation of Proposed Structure
• Drafting the Terms Sheet
• Indicative v Final Decisions
• Lender Commitment & Borrower Acceptance
• CPs & CSs to Drawdown/Completion

SECTION 4. STRUCTURING THE LOAN/CREDIT FACILITY

Topics: 

• Capturing the Borrowing needs
• Managing the Lender’s risks
  • Representations & Warranties
  • Financial Covenants
  • Undertakings
  • Events triggering Default or Review
• Typical Documentation
• Other considerations
  • Bilateral arrangements
  • Syndicated facilities
  • Club facilities
  • JVs
  • Risk Transfer
• Structured financings (securitization, off balance sheet)
• Considerations for Pricing

SECTION 5. MANAGING LOANS & CREDIT FACILITIES

Topics: 

• Ongoing monitoring
• Borrower obligations
• Adverse developments and Problems Loans
  • Sell exposure
  • Support a Workout
  • Realise Security
  • Provisioning

SECTION 6. CREDIT RISK IN FINANCIAL INSTITUTIONS

Topics:

• Credit Culture
• Governance Considerations
• Regulatory issues
• Pricing for Counterparty Credit Risk
• Portfolio Treatment
• Management & Mitigation

Fail Hurdle grade added to grading descriptors table.

This Unit Guide may be subject to change. The latest version is on the Centre’s web site www.mafc.mq.edu.au.

Students should read the Unit Guide carefully at the start of semester.  It contains important information about the unit.  If anything is unclear, please consult one of the unit lecturers.  

University Policy on Grading:

• Macquarie University’s Academic Senate has established a Grading Policy available at http://www.mq.edu.au/policy/docs/grading/policy.html. Your final result will include: 
  • A grade ranging from Fail Hurdle to High Distinction; and
  • A numerical Mark which is a summation of the individual assessment components, providing the examination component is passed.
• It is important to note:
  • The Policy does not require that a minimum or maximum number of students are to be failed in any unit; 
  • Grades will not be allocated to fit a predetermined distribution; and
  • Grades for all individual assessment items will be released to students, but Marks may not necessarily be released.

Specific Unit Grading: 

• To pass this unit (requires a Mark of 50 or better) the student must pass the final examination.
  • Students who have attained a total raw mark of 50% or greater in a unit, but have failed the Unit’s exam requirement and who have demonstrated “sufficient effort” in the exam, will be granted a single opportunity to sit a Supplementary Exam which will be graded on a pass/fail basis. The unit mark and grade for students who pass this examination will be those corresponding to the original total raw mark of all their assessment tasks, including the original exam. That is, the Supplementary Hurdle Exam only determines the meeting of the hurdle requirement. Students who have attained a raw mark of 50% or greater in a unit, yet failed all attempts at the requirement, will be awarded an FH grade with a final mark of 49.
• All final Marks and Grades in the Applied Finance Centre are determined by a grading committee and are not the sole responsibility of the unit convenor.
• The core criteria used to assess student work in this unit are: 
  • Knowledge and understanding: Understanding key ideas, knowledge and use of concepts.
  • Application: Ability to apply theoretical ideas and frameworks in practice and in a critically reflective way. 
  • Reasoning and analysis: Ability to analyse, use critical reasoning and principles to formulate a position, balancing theory and personal reflection. 
  • Professional literacy and research: Understanding of professional factors (language and landscape) and ability to undertake appropriate research. 
  • Communication and presentation: Ability to communicate and present effectively (written and oral, as relevant).
  • Use of mathematical and statistical ideas: Ability to use mathematical and statistical ideas, methods and formulae appropriately. 
• Performance in relation to each of these criteria are assessed against the University’s grading descriptors:

Review of Grade and final examination Script viewing:

• A student who has been awarded a final grade for a unit and who does not believe it is an accurate reflection of their performance, and has grounds for such a claim and can demonstrate those grounds, may apply to have their grade reviewed. 
• For information on requesting a review of grade and/or viewing your final exam script, please refer to the University’s Grade Appeal Policy at http://www.mq.edu.au/policy/docs/gradeappeal/policy.html and MAFC Program Rules & Procedures at http://www.mafc.mq.edu.au.