Learning Objectives:

• Evaluate collateral and its role in credit risk mitigation.

• Understand personal and corporate guarantees.

• Assess credit enhancements and their impact on risk.

6.1 Collateral Evaluation

Collateral evaluation is a critical element of credit risk assessment. The Campbell University course places “special emphasis… on asset-based lending facilities, valuation of collateral, the collection of credit information and its analysis” . The IBA programme covers “Calculating Loan to Value, Loan to Cost, and Lendable Equity” .

6.2 Guarantees

Personal and corporate guarantees serve as secondary repayment sources. The IBA programme covers “Analyzing the Personal Financial Statement” and “Calculating Global Debt Service Coverages for Business Owners/Guarantors” . The Connecticut Bankers Association programme covers “Guarantees” and “Subordinations” as documentation topics .

6.3 Credit Enhancements and Mitigation

The IBA programme covers “Structuring the Loan and Loan Agreement to Mitigate Risk” and “Hedging Interest Rate Risk” . Beyond collateral and guarantees, other credit enhancements may include:

• Financial and non-financial covenants

• Interest rate hedges

• Subordination agreements establishing priority of claims