part 1 with its own citation
In commercial lending, a major part of the ability of the company to pay back debt is from profitable operations. In a growing economy, this can be easier to do. Choose two industries and choose a company from each; one cyclical (real estate, automobiles, home builders, etc.) and one non-cyclical. Review the cash flow statements and identify what, in your view, are the key cash drivers for the company? What type of credit risk do you feel the company is exposed to, based on cash flow analysis? Assume a downturn in the economy, what effect would this have on your decision.
Part two with its own citation
Theresa Miller is the owner of Cineplex Universal, a holding company for a chain of 12 movie theaters and a small TV station in Kansas City. Although the company is privately owned, Mrs. Miller and Cineplex Universal have been a long-standing client of Mesa Verde Financial, with the relationship dating back to 1990. Mrs. Miller has recently approached Mesa Verde Financial regarding her expansion efforts to purchase a 21-store commercial office building that is expected to be fully occupied (10 leases are contracted with tenants for up to five years with provisions for renewal and step-up rental rates). Mrs. Miller plans to operate one of the stores as both a distributor and a retailer for childrens accessories, and wants to gain a direct retail license from Disney as well as a $10,000,000 line of credit. Rent income on the building is expected to yield $180,000 per month. Mrs. Miller also projects that distribution revenues can yield from $75,000 to $100,000 per month and retail sales of $30,000 to $50,000 per month. Mrs. Miller has asked for a $10,000,000 line of credit as part of her working capital needs and says she would be willing to pledge an assignment of rental proceeds as collateral.
Create a risk evaluation for the facility request to use in evaluating the credit-specific fundamentals of the respective credit request.