Six C's of Credit Analysis, by Costas Th. Grammenos

This is a part of my exam I guess. Mr. Jonathan Challacombe explained these for about over 45 minutes when everyone was half asleep that time. No choice, as the day before this lesson was the birthdays, remember? I went to their house and become a photographer, and took lots of awesome photos.

PS: Of course, they are awesome. I am tired being humble, but I still plan to continue. But in anyway,
just let me be flashy on this issue ok?

The Six C's of Credit Analysis. This 6 C's are what the banks will look and evaluate before deciding to borrow a company money. Many students should have no information about these, yet they don't own the book that Jonathan used to dig these out. Actually I tried to ask if Jonathan still has any copy left with him and I would like to buy one since I got extra money left for quite a long time already, but no luck, he said he does not keep any copy.

Nevermind.

So, now for me to have these notes, those people who go online and search for these will be linked to my blog, a good way to earn viewers huh? And yes, now I am studying things about investment, but basically on shipping side.

The first and second one is Character, or also known as Capacity. The bank will look at who is the head of the company, how is the team in the company, does it involved enough people to operate, and the integrity of the company. The company's mission and goals, their strategic plan and how will they try to achieve the. In particular, the details involved their investment and finance, the chartering operation, insurance, technical things, the company's cost management and risk management, their creditors and also the human resources, which means their workers. And lastly the coherent, which I don't really know what it means, but basically is the things that stick to the company, like what the company does other than just shipping.

The third will be the Capital. It involved the shipowner's capital situation, the company's head which is the directors' financial condition, and also the shareholders stake. The company's financial structure and statements will be analysis, by using those financial ratio analysis probably. For example the gearing ratio, current ratio etc. The bank will want to know about the cash flow condition of the company, do they have a cash cushion or other sources of fund. And also the company's relationships with banks, do the company has good reputation along with other banks etc. And lastly their accounting method.

The Company itself will be the fourth factor. The bank will look at the structure of company. The inflows of company include the form of employment, their choice and quality of the charterers, the contracts with charterers and also the effectiveness to utilise their fleet etc. And the outflows of finance of the company such as the administration fees, technical cost, insurance and the crew wages. Also the voyage costs of the company, its' capital costs. And lastly the company's operation position in the market, which the bank will assess by looking at the market the company operates in and their market share.#

Fifth will be the Conditions. It refers to the external factors of the market. For instance the financial markets, interest rate, world economy, political condition, seaborne trade, specific condition, manufactured goods, the shipping markets, present and future demand and supply analysis, shipping investment cycle, fragmentation of markets, and the barriers of entry to certain market. Also included the regulatory framework in the market like IMO, flag states, port authorities, ISM code and OPA 90. And other organisation requirement, for example the classification societies, insurance companies and P&I club. And one more factors which affecting the oil trade, the monopoly of oil market the major oil companies.

Sixth, the Collateral, which refers to the bank benefits, how much the rewards they get from lending money. Usually in the range of 120%. The bank will look at the company's fleet information, does their fleet is earning enough money to pay the interest, their fleet's condition, and the vessel economic life, which should be lesser than 12 years. Also, the bank will want mortgages, assignments of income, assignment of underwriters and the personal and corporate guarantee that they will be able to pay back the money they owe the bank, plus the interest.

So these are some of my elaborations. For all the sources from the book "The Handbook of Maritime Economy and Business", by Costas Th. Grammenos.

Referencing:
1) Grammenos C. Th (2010), 'The Handbook of Maritime Economics & Business', ed. 2nd Revised, Informa Law