A Pragmatist’s Guide to Leveraged Finance: Credit Analysis for Bonds and Bank Debt

20. I’m Looking at Debt, So Why Does Equity Matter?

What’s in this chapter:

• How to use equities to establish asset valuations

• Comparing leverage to equity value

• How to use equity prices to monitor debt positions

You should never ignore equities when analyzing leveraged finance credits, whether or not the company you are looking at has public stock. First, using the public stock of the company you are analyzing and those of comparable peers is generally a quick and relatively easy way of divining an estimate of underlying asset value. With the volatility of the equity markets, you can also get a relatively constant check on the market’s perception of a company’s value. Second, given the trading liquidity and news flow on public equities, ...