§ 01
| C | What It Measures | Key Questions |
|---|---|---|
| Character | Management integrity and track record | Do they honor commitments? History of defaults? |
| Capacity | Ability to service debt from cash flow | Is cash flow stable enough to cover interest + principal? |
| Capital | Balance sheet strength | How much equity cushion? Asset quality? |
| Collateral | Asset backing for the loan | What can lenders claim if the borrower defaults? How much would it recover? |
| Conditions | External environment | Industry cycle? Regulatory risk? Economic outlook? |
§ 02
Credit analysis is asymmetric: the best outcome for a bondholder is getting your money back plus interest. The worst outcome is total loss. This asymmetry means credit analysts are trained to think about what can go wrong, not what can go right.
§ 03
Look up a company in **Fundamentals** and evaluate it through the 5 Cs lens. Can it cover its interest expense? Is the balance sheet strong? What collateral backs the senior debt? Is the industry in growth or decline?
§ 04
An equity analyst rates a company a ‘Strong Buy’ based on 30% revenue growth. A credit analyst rates the same company’s debt ‘B’ (high risk). Can both be right?
§ 05
Five questions · AI feedback
Sit with the ideas.
A company has stable cash flows, low leverage, excellent management, but operates in an industry facing structural decline (e.g., print newspapers). Which of the 4 Cs is the biggest concern?
Why:
Try this in paper trading
BDC yield spread vs Treasuries
Pick a publicly-traded BDC (ARCC, BXSL, OBDC, MAIN, etc.). Compute the spread between the BDC's dividend yield and the 10-year Treasury yield. Paper-buy with a thesis explaining whether the spread compensates for the credit risk you're taking.
Open paper portfolio →Practice mode — simulated trades, not investment advice.