Page 41 - FINAL CFA SLIDES DECEMBER 2018 DAY 15
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Session Unit 16:
55. Fundamentals of Credit Analysis
Example: Credit ratings based on ratios (Part 2), p.138: Coyote Media decides to spin off its television division. The
new company, CoyTV, will issue new debt and will not be a restricted subsidiary of Coyote Media. CoyTV is more
profitable and generates higher and less volatile cash flows. Describe possible notching for the new CoyTV issue and
the potential credit rating change to Coyote Media.
Answer:
Because CoyTV may be a better credit risk due to a better profit potential, the new issue may have a credit
rating one notch above Coyote Media.
tanties
Coyote Media may now be less profitable and could have more volatile cash flows. This suggests an increase
in credit risk that could lead to a credit rating downgrade.
