Caia Level 1
Caia Level 1 Questions
Caia Level 1 Questions
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Cartes-fiches
- Senior debt - Mezzanine debt - Equity
- Sale to a strategic buyer - Sale to a financial buyer - Sale via IPO - New LBO - Refinancing - Hybrid strategy
- CG principles remain in place after the company becomes public again - threat for management of being removed if no CG are incorporated - provide a roadmap for other manager - helps prevent the formation of inefficient conglomerates
+ larger capital pool + investment restrictions + pooled resources - lack of market participants - lack of defined leadership for the business plan
- LBO targets have track record with proven products/services - LBO are able to diversify while venture capital firms are specialized - IPO exit strategy is much more realistic
True
4-4,5
- Management buyout - Leveraged buyout - Growth and/or expansion - Acquisitions - Company recapitalization - Commercial real estate financing - Bridge financing
- Mezzanine funds - Insurance companies - Traditional senior lenders (banks) - Traditional venture capital firms
- Board respresentation - Restrictions on the borrower - Flexibility - Negotiations with senior creditors - Subordination - Acceleration of senior debt - Assign interest to third parties - Takeout provision
- new types of commercial loans - active portfolio management - increased debt levels - increased M&A and LBO activity - growth of covenant -light loans
- active investors seeking control - active investors not seeking control - passive investors
- file for protection under chapter 11 - court freezes all default notices ( - accelerated process with pre -packaged bankruptcy filling) - create and file a plan of reorganization - convince creditors to accept plan - if accepted seek approval by court - if not accepted submit new plan
- allows borrower to continue opperations - DIP loans have first priority
- defult risk - downgrade risk - credit spread risk
single -name instruments
CDS credit default swap
Funded credit instruments involve the transfer of notional principal
- Defensive stage (late 1980s - early 1990s) - Emergence of intermediaries (1991 - late 1990s) - Development of Redulations (late 1990s - 2002) - Liquid Market (2003 - present)
Credit Default Swap CDS
- CDS (credit default swap) - TRS (total return swaps)
-CDS spread - Contract size and maturity - Payment trigger events - Method of settlement - Choice of assets to deliver
- Credit reference - Notional amount - CDS spread - CDS maturity
- contract termination - offsetting postion - novation
- ability to isolate pure credit risk - synthetic short credit positions can be implemented cheaply and effectively - ability to create synthetically credit exposure without owning the underlying asset - serve as a link between bond, loan, equity, structured products - provide much needed liquidity during market stress
- Operational risk - Pricing/model risk - Liquidity risk
- Counterparty risk - Basis risk
- Ramp -up period - Revolving period - Amortization period
- weighted average rating factor WARF -> measures the risk; scale 1 -10'000 - weighted average spead WAS -> measure of the return - diversity score -> measures diversity
- balance sheet CDO - arbitrage CDO
- reduce credit exposure from balance sheet - capital infusion - reduce regulatory capital charges
earn profits through management fees and excess spread in the equity tranche
- cash -funded CDOs - synthetic CDOs
- cash flow CDOs - market value CDOs - synthetic CDOs
- Ownership: cash -funded own the assets - Use of proceeds from the sale of tranches: cash -funded buy laons and bonds from collateral, synthetic buy treasury securities
- avoids the transfer of assets - less burdensome - scarce assets - use of leverage
- cash flow CDOs: maturities of CDO assets and liabilities are matched - market value CDOs: portfolio is actively traded to generate a higher return
credit enhancements are made to improve credit ratings. Subordination
internal: - overcollateralization - excess spread - cash external: - standard insurance contract - put option - CDS
copula approach