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Opening Credit: A practitioner's guide to credit investment by Justin McGowan, Duncan Sankey

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6. How Non-Credit Factors Drive Credit

One key factor in making money from credit often resides in spotting transitions in credit risk early on. Unfortunately, such transition risk is not always first signalled by credit market variables. Investors must be ready to read tea-leaves from other cups, since markets for other parts of a company’s capital structure may signal change first.

A rigorous quantitative credit analysis of a credit is a vital part of the overall assessment of its attractiveness as a potential investment, but there are other, non-credit-specific elements that enable the investor to position the credit in a broader context, and look at other potential sources of threat to the bondholder’s interests.

Four principal areas are ...

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