Day release

Target Audience
The programme is targeted at:
• Buy side and Sell side research
• Credit Analysts
• Risk Managers

Learning Approach
The course is very ‘hands-on’ and based entirely in excel. Intuiton will facilitate the learning process through a combination of:

• Presentation of core knowledge and concepts using power point slides
• Press articles and real life case studies
• Short exercises (in excel and word)
• Financial models, to teach delegates the principles of financial modelling
• Regular summaries, to remind delegates of the key points of each session
• End of Day quizzes, to confirm the achievement of the learning outcomes
• Course summaries, as a take away and reminder of the key learning points

Course Content
Draft Pre-work (Dependant on learner knowledge)
• Lending – An Introduction
• Bonds- An Introduction
• Equities – An Introduction
• Corporate Finance – Measuring Business Performance (Free Cash Flow)
• Corporate Finance – Measuring Business Performance (Economic Profit)
• Corporate Finance – Cost of Capital
• Credit Analysis – An Introduction
• Financial Analysis – An Introduction
• Principles of Credit Extension
• Debt Capacity & Cash Flow Analysis

Day 1 -Afternoon Session
Market valuation, covenants and debt capacity
• Delegates will apply market multiples to derive a market based valuation and compare this against the fundamental valuation derived in Session 1
• They will examine covenant ratios and constraints and analyze current headroom and debt capacity
• They will perform scenario analysis/ stress testing to assess financial flexibility
• Finally, they will build a ‘sources and uses of funds’ table and consider alternative deal structures and funding sources
• During the afternoon a guest speaker will discuss the dynamics of the recent Dana / Bow Valley transaction, including strategic, capital structure, valuation and execution aspects, with Q&A.
• Market based valuation techniques
• Comparing market vs. fundamental value
• Capitalizing operating leases to compare like for like Enterprise Values
• Covenant ratios, debt capacity and fixed/floating mix
• Sensitivity analysis of key input assumptions vs. debt capacity
• Sources and Uses of Funds table
• Alternative offer structures (all cash, all shares and ‘mix and match’) and funding sources (equity, loan notes, bridge facility, Senior debt, bonds and mezzanine)

Day 2 – Morning Session
Equity Issuance, synergies and proforma effects
• The session will commence with an overview of equity raising techniques
• Delegates will then examine the pro forma financial effects of an acquisition, under different deal structures (eps accretion/ dilution, gearing and coverage ratios) and determine shareholder value creation/ destruction
• They will consider the strategic, operating and financial implications of a deal, and how synergies can create shareholder value
• They will analyze covenant ratios and constraints, headroom and debt capacity
• Equity Issuance Techniques
• Rights Issues (Signaling Effect)
• Open Offer / Placing
• Convertible Bonds
• Proforma financial effects of a combination:
• All share deal
• All cash deal
• Mixture of cash & shares
• Identifying, quantifying and valuing synergies
• Proforma covenants and headroom
• Scenario analysis and stress testing

Day 2 – Afternoon Session
• Negotiation dynamics, risk management, offer timetable and course assessment
• Delegates will consider Corporate Risk Management aspects to the transaction
• They will consider the negotiation tactics and bid/offer parameters to reach an agreed deal
• They will learn key aspects of the UK takeover code, offer timetable and documentation required
• Assess FX, Interest Rate, Commodity, Equity and Credit Risks and hedging strategies
• Negotiate an agreed offer price and structure
• UK takeover code, deal timetable and approval process

In addition to product and market knowledge, the course discusses in detail the metrics used by the bank to control counterparty credit risk. This normally includes understanding how volatility is the “source” of counterparty credit risk, how volatility is measured and how the bank uses it to “forecast” the amount that its clients could owe it.
The above topics are reinforced by means of real deal case studies designed to show how the risks are measured using real life examples.

Target Audience
Junior to mid-level front office, risk, financial controls and operations staff with product control, management performance review, and operational control responsibilities for derivatives businesses.

Prerequisite Knowledge or Courses
Participants will complete a short pre-course study using some of Intuition’s financial markets e-learning materials.

The knowledge and experience required is typical of the target audience.

Learning Approach
Classroom and Pre-learning
• Market Risk – Identification & Measurement
• VAR – An Introduction
• Swaps – Constant Maturity Swaps
• Swaps – Applications for Corporates
• Swaps – Credit Exposure
• Swaps – Documentation & Settlement
•Target Redemption Notes (TARNs)

PSE, PSLE and CVA Overview
• Bank positive fair market value
• FX, interest rate swaps, options, commodities
• Monte Carlo approach to PSE, PSLE and CVA
• Volatility as the main driver of counterparty risk
• Credit Valuation Adjustments
• PSE and PSLE Exercise

Interest Rate Swaps
• Introducing swaps and their main uses
• Swap rates and yields
• Building the swap pricing curve
• Discount factors calculated from the swap curve
• Libor forward rates
• Swap pricing
• Fair market value for swaps

Day 2
Interest Rate Swap Case Study
• Floating rate borrower
• Inception value
• Swap P&L as rates change
• How the bank accounts for the swap P&L

Volatility
• Volatility from price changes
• Log-normal modeling of prices and rates
• Comparing real life with the bell curve
• Volatility smiles and smirks
• Volatility term structure
• “Forecasting” future rate moves using volatility

Understanding Risk Measures
• Fair market value (FMV)
• Changes in FMV as the source of risk
• Value at Risk (VaR)
• Pre-settlement exposure (PSE)
• Pre-settlement loan equivalent (PSLE)
• Credit Valuation Adjustments (CVA)
• Calculating risk measures in an interest rate swap
• Obtaining and understanding the classic humped credit risk profile in an interest rate swap

Day 3
Options
• Long and short calls
• Long and short puts
• Payoffs to the buyer and the seller
• Options and “the money”
• Comparing in-, at- and out-of-the-money
• American, European and Bermudan options
• Intuitive approach to option valuation

FX Products
• Money markets and foreign exchange
• FX trading and market size
• Base and terms currencies
• Non Deliverable Forward (NDF) for an exporter
• Understanding the trade
• Financial controls
• Market risk and VaR
• Counterparty credit risk and PSE/PSLE
• Right way and wrong way exposure
• FX option for an exporter
• Understanding the trade
• Financial controls
• Market risk and VaR
• Counterparty credit risk and PSE/PSLE
• Right way and wrong way exposure

Foreign Exchange Exercises
• Cross currency swap
• Cross currency swap right way and wrong way exposure
• Exporter uses options to construct hedges
• Basket FX options and PSE
• Exporter multi-month exposure, forwards, par forwards and options and dynamics of PSE

Commodity Derivatives
• Energy derivative markets and products
• Client profiles
• Client hedging activity

Commodity Exercises
• Copper caps and floors
• Client short oil floors and PSE
• Jet fuel floor structures and PSE
• More copper swaps, caps and floors
• Oil-linked bank debt

Credit Risk Mitigation Techniques
• Collateralization
• Re-couponing
• Early termination
• Case studies for each risk mitigant