# Bond Credit Analysis: [Issuer] [Coupon] [Instrument] due [YYYY]

> Investor-side credit analysis of one bond issuer and instrument, as
> used by fixed income analysts and portfolio managers at asset
> managers, insurers, pension funds and private credit funds: the
> recommendation and internal credit rating, business and industry
> risk, financial analysis (leverage, coverage, cash flow, liquidity),
> forecast and stress, capital structure and recovery, bond terms and
> covenants, ESG credit factors, valuation and relative value, and
> monitoring triggers. Based on standard fixed income analysis
> (yield, duration, convexity, spread, expected loss) and on the
> regulatory expectation that investors form their own credit view
> rather than rely only on agency ratings (EU Credit Rating Agencies
> Regulation, Art. 5a). Replace every `[bracketed]` value and every row
> marked *Example*. This is a document format, not financial,
> investment, tax, legal or accounting advice; obtain the bond
> documents and the law for the normative text.

<!--
Guidance: How to use this template
- Write one analysis per issuer, with a section 9 row per bond held or
  proposed. Refresh it at least annually and after any trigger in
  section 12.
- This is the investor's view of a traded or privately placed bond. A
  bank's lending decision uses the Credit Memo (`finance/credit-memo`);
  an agency-style rating write-up uses the Credit Rating Rationale
  (`finance/credit-rating-rationale`). A borrower's covenant report is
  the Covenant Compliance Certificate
  (`finance/covenant-compliance-certificate`).
- Fill section 1 last, after the numbers in sections 5 to 10 are
  final. Make every ratio reproducible: state the definition, the
  adjustments and the source period.
- When the bond is proposed for a portfolio, put the decision to the
  committee with the Investment Committee Memo
  (`finance/investment-committee-memo`) and link this analysis.
- Worked example: Kestrel Bay Capital (a fictional SEC-registered
  investment adviser) analyses the EUR 400m 5.25% senior unsecured
  notes due 2031-06-15 of Halvard Tools (a fictional listed toolmaker)
  for its Global Credit strategy. Everything is invented and nothing is
  a recommendation on a real security. Halvard figures follow the
  shared fictional example used in Valuation Report
  (`finance/valuation-report`) and Equity Research Report
  (`finance/equity-research-report`): FY2026 revenue EUR 3,000m, EBITDA
  EUR 450m, net debt EUR 600m including leases.
- Conventions in the example: currency EUR, amounts in millions, fiscal
  year ends 31 December, last reported year FY2026, annual coupon with
  day count ACT/ACT (ICMA) and annually compounded yields (the usual
  convention for EUR corporate bonds), spreads in basis points (bp)
  over the interpolated government curve, valuation date 2027-06-15 (a
  coupon date, so accrued interest is zero and four annual periods
  remain).
-->

## Document control

<!-- Guidance: Identify the issuer, the instruments covered and the financial period the analysis rests on. A new reporting period or a trigger review is a new version. -->

| Field | Value |
|---|---|
| Document ID | [BCA-ISSUER-YYYY-NN] |
| Issuer (legal entity) | [Issuer name], [jurisdiction] |
| Guarantors | [Parent and subsidiary guarantors] |
| Instruments covered | [Identifier type and identifiers] |
| Financial period relied on | [FY or LTM to YYYY-MM-DD] |
| Analyst | [@credit-analyst] |
| Version | [0.1] |
| Status | [Draft / Reviewed / Approved / Superseded] |
| Owner | [@head-of-credit-research] |
| Approvers/reviewers | [@portfolio-manager], [@credit-committee-chair] |
| Last updated | YYYY-MM-DD |
| Next scheduled review | YYYY-MM-DD |
| Classification | [Internal / Confidential: may contain private-side information] |
| Information barrier status | [Public side only / Wall-crossed on YYYY-MM-DD] |

### Approvals

| Role | Name | Decision | Date |
|---|---|---|---|
| Credit analyst | [@name] | Prepared | YYYY-MM-DD |
| Peer reviewer | [@name] | [Reviewed / Comments] | YYYY-MM-DD |
| Credit committee chair | [@name] | [Internal rating approved / Changed to KB-n] | YYYY-MM-DD |
| Portfolio manager | [@name] | [Acknowledged] | YYYY-MM-DD |

### Revision history

| Version | Date | Author | Change summary |
|---|---|---|---|
| 0.1 | YYYY-MM-DD | [@name] | Initial analysis |
| 1.0 | YYYY-MM-DD | [@name] | *Example:* Internal rating KB-6 approved, recommendation Overweight |
| 1.1 | YYYY-MM-DD | [@name] | *Example:* Updated for half-year results; no rating change |

## Contents

<!-- Guidance: Keep this list aligned with the H2 headings. -->

1. [Recommendation and internal rating](#1-recommendation-and-internal-rating)
2. [Issuer overview](#2-issuer-overview)
3. [Industry and business risk](#3-industry-and-business-risk)
4. [Management, strategy and financial policy](#4-management-strategy-and-financial-policy)
5. [Financial analysis](#5-financial-analysis)
6. [Forecast and stress scenarios](#6-forecast-and-stress-scenarios)
7. [Liquidity and refinancing](#7-liquidity-and-refinancing)
8. [Capital structure and recovery analysis](#8-capital-structure-and-recovery-analysis)
9. [Bond terms and covenants](#9-bond-terms-and-covenants)
10. [Valuation and relative value](#10-valuation-and-relative-value)
11. [ESG credit factors](#11-esg-credit-factors)
12. [Risks, monitoring triggers and review](#12-risks-monitoring-triggers-and-review)
13. [Glossary and references](#13-glossary-and-references)
14. [Standard and licence note](#standard-and-licence-note)

## 1. Recommendation and internal rating

<!-- Guidance: Give the investment view and the internal rating with its outlook in one table, then three to five sentences of rationale. Questions: does the spread pay for the risk, which way is credit quality moving, what would change the view? Pitfall: copying the agency rating as the internal rating without independent work. -->

| Field | Value |
|---|---|
| Recommendation | [Overweight / Market weight / Underweight / Avoid] |
| Internal rating and outlook | [KB-n], [Stable / Positive / Negative] |
| Agency ratings (for reference) | [Agency]: [rating, outlook, date] |
| Instrument view | [Preferred bond and reason] |
| Fair spread range | [x to y] bp |
| Current spread | [z] bp |
| Key upside driver | [Driver] |
| Key downside risk | [Risk] |

*Example:* Overweight the 5.25% 2031 notes. Internal rating KB-6
(equivalent to the lower end of investment grade), outlook Stable. The
notes trade at 160 bp over government bonds against a fair range of
135 to 150 bp for KB-6 industrials with this recovery profile. Net
leverage of 1.33x at FY2026 sits well inside the 2.75x downgrade
trigger, and the forecast takes it below 1.0x by FY2027 as cash flow
rises and the bank loans due 2028 are repaid. The grade stays at KB-6
rather than KB-5 despite the low leverage, because cash flows are
cyclical (EBITDA fell 28% peak to trough in the last downturn), the
margin recovery depends on closing two of nine plants, and 45% of
revenue goes through retailers with strong bargaining power. The main
risk is a debt-funded acquisition; the change-of-control and financial
policy signposts in section 12 cover it.

### 1.1 Internal rating scale

| Internal grade | Broad meaning | Indicative 5-year cumulative PD used for pricing |
|---|---|---|
| KB-1 to KB-3 *(Example)* | Very strong to strong | Below 0.5% |
| KB-4 to KB-6 *(Example)* | Adequate, investment grade | 0.5% to 2.5% |
| KB-7 to KB-8 *(Example)* | Speculative | 2.5% to 15% |
| KB-9 to KB-10 *(Example)* | Highly speculative to distressed | Above 15% |

State how the internal scale was calibrated (for example to long-run
historical default studies) and when it was last validated. The model
or scorecard behind it is subject to the firm's model risk policy; see
Model Risk Management Policy (`finance/model-risk-management-policy`).

## 2. Issuer overview

<!-- Guidance: Describe the issuer and its group as a creditor sees it: who owns it, where the cash is generated, which entities owe the debt. Pitfall: describing the listed parent while the bonds are issued by a finance subsidiary with partial guarantees. -->

Summarise the business, segments, geographies, ownership, listing and
group structure. Show which entities issue and guarantee the debt and
what share of EBITDA and assets sits in guarantor entities.

| Item | Detail |
|---|---|
| Business *(Example)* | Power tools, hand tools and accessories; 55% professional trade through dealers and distributors, 45% retail (home-improvement chains and online) |
| Revenue FY2026 *(Example)* | EUR 3,000m; Europe 60%, North America 30%, rest of world 10% |
| Ownership *(Example)* | Listed, free float 92%, founding family 8% |
| Issuer of the notes *(Example)* | Halvard Tools Finance B.V. (wholly owned), guaranteed by the parent and material subsidiaries |
| Guarantor coverage *(Example)* | 85% of EBITDA, 80% of total assets |
| Agency ratings *(Example)* | Agency A: BBB- stable; Agency B: Baa3 stable |

```mermaid
flowchart TB
  P["Halvard Tools (listed parent, guarantor)"] --> F["Halvard Tools Finance B.V. (issuer of the notes)"]
  P --> OE["Operating subsidiaries, Europe (guarantors)"]
  P --> OA["Operating subsidiaries, North America (guarantors)"]
  P --> OR["Rest of world and minor subsidiaries (non-guarantors, 15% of EBITDA)"]
```

## 3. Industry and business risk

<!-- Guidance: Assess the factors that make cash flows stable or volatile: cyclicality, competition, market position, diversification, cost structure. Questions: what happened to this issuer in the last downturn, how much of the cost base is fixed? Pitfall: an industry description with no conclusion on risk. -->

Score each business risk factor against the firm's methodology and
explain the score in a sentence. Use the last downturn as evidence.

| Factor | Assessment | Score (1 strong to 5 weak) | Evidence |
|---|---|---|---|
| Cyclicality *(Example)* | Exposed to construction and industrial activity | 3 | EBITDA fell 28% peak to trough in the last downturn |
| Market position *(Example)* | Top-five global share in professional tools | 2 | Commercial data, brand surveys |
| Diversification *(Example)* | Good by geography, moderate by end market | 2 | Section 2 split |
| Cost flexibility *(Example)* | About 60% variable costs | 3 | Annual report cost note |
| Input cost exposure *(Example)* | Steel, battery cells (two suppliers) and electronics | 3 | Price-cost spread history |
| Business risk overall | | [Weighted score] | |

Add a short narrative on competitive dynamics, technology shifts (for
example battery platforms), channel power and regulatory exposure.

*Example:* Halvard competes with larger cordless platforms in North
America and with lower-cost producers in hand tools. Its strength is
the European professional dealer channel; its weakness is the 45% of
revenue sold through retailers, whose buying decisions drove the
2025 to 2026 destocking. About 40% of costs are fixed, so a 10% volume
fall at constant prices removes almost four points of EBITDA margin
(from 15.0% to about 11.2%) before management actions. Those facts, rather than the industry label, set the business
risk score and calibrate the stress in section 6.

## 4. Management, strategy and financial policy

<!-- Guidance: Creditors care about the financial policy more than the strategy story. Questions: what leverage target has the board stated, how are shareholder returns and acquisitions funded, has management kept past promises? Pitfall: ignoring a shareholder-friendly turn such as large buybacks funded with debt. -->

Record the stated financial policy and assess its credibility.

| Policy item | Stated position | Track record | Credit view |
|---|---|---|---|
| Leverage target *(Example)* | Net debt / EBITDA 1.0x to 2.0x through the cycle | Exceeded 2.0x once, for 4 quarters after an acquisition | Supportive |
| Dividends *(Example)* | 35% to 45% payout | Maintained in last downturn | Neutral |
| Buybacks *(Example)* | Only when leverage below 1.5x | Consistent | Supportive |
| Acquisitions *(Example)* | Bolt-ons; no transformational deals planned | One mid-size deal in 2021 | Watch |
| Commitment to investment grade *(Example)* | Stated in investor materials | Kept | Supportive |

Judge credibility by what management did under pressure, not by what it
says in good years. In the example the leverage target was exceeded once,
for four quarters after an acquisition, and the board cut the buyback
rather than the dividend to restore it. A creditor should also ask
whether the shareholder base pushes for higher distributions: with
leverage at 1.33x and falling below 1.0x, the main credit risk is not
the current balance sheet but a re-leveraging decision, which is why
trigger CRT-003 matters more than the ratio triggers today.

## 5. Financial analysis

<!-- Guidance: Show five core ratio groups with definitions and adjustments: profitability, leverage, coverage, cash flow and capitalisation. Questions: which adjustments (leases, pensions, hybrids, factoring) are made and why? Pitfall: mixing reported and adjusted figures across years. -->

### 5.1 Ratio definitions

$$
\text{Net leverage} = \frac{\text{Gross debt} - \text{Cash}}{\text{EBITDA}}
$$

$$
\text{EBITDA interest cover} = \frac{\text{EBITDA}}{\text{Net interest expense}}
$$

$$
\frac{\text{FFO}}{\text{Net debt}} = \frac{\text{EBITDA} - \text{Cash interest} - \text{Cash tax}}{\text{Net debt}}
$$

$$
\text{Debt to capital} = \frac{\text{Gross debt}}{\text{Gross debt} + \text{Book equity}}
$$

State the adjustments applied: lease liabilities (included or excluded
consistently), pension deficits, hybrid instruments (equity credit),
receivables factoring, restricted or trapped cash and non-recurring
items. Use the same definitions as the forecast in section 6. The
example uses net interest including lease interest, consistent with
the issuer's reporting; if your methodology uses gross interest, say so
and apply it to every year and every peer.

### 5.2 Historical and forecast ratios

| EUR m | FY2024 | FY2025 | FY2026 | FY2027E |
|---|---|---|---|---|
| Revenue *(Example)* | 2,700.0 | 2,860.0 | 3,000.0 | 3,150.0 |
| EBITDA (normalised) *(Example)* | 432.0 | 443.3 | 450.0 | 519.8 |
| EBITDA margin *(Example)* | 16.0% | 15.5% | 15.0% | 16.5% |
| Net interest expense including lease interest *(Example)* | 34.0 | 32.0 | 30.0 | 28.0 |
| Cash tax *(Example)* | 75.9 | 77.8 | 78.8 | 95.4 |
| FFO *(Example)* | 322.1 | 333.5 | 341.2 | 396.4 |
| Net debt including leases *(Example)* | 690.0 | 640.0 | 600.0 | 480.1 |
| Net leverage *(Example)* | 1.60x | 1.44x | 1.33x | 0.92x |
| EBITDA interest cover *(Example)* | 12.7x | 13.9x | 15.0x | 18.6x |
| FFO / net debt *(Example)* | 46.7% | 52.1% | 56.9% | 82.6% |

*Example check (FY2026):* FFO = 450.0 minus 30.0 minus 78.8 = 341.2;
net leverage = 600 / 450 = 1.33x; interest cover = 450 / 30 = 15.0x;
FFO / net debt = 341.2 / 600 = 56.9%. Gross debt of EUR 650m (notes
400, bank loans 100, lease liabilities 150) less cash of EUR 50m gives
net debt of EUR 600m, the same bridge as the valuation report. Debt to
capital with book equity of EUR 1,800m = 650 / 2,450 = 26.5%. The
FY2027E column follows the equity research forecast, including EUR 32m
of restructuring cash costs that sit below normalised EBITDA but
increase net debt.

### 5.3 Cash flow and capital allocation (FY2026)

| EUR m | Amount |
|---|---|
| Cash flow from operations *(Example)* | 300.2 |
| Capital expenditure, including right-of-use additions *(Example)* | minus 120.0 |
| Free cash flow *(Example)* | 180.2 |
| Dividends (FY2025 DPS EUR 0.75 x 120m shares) *(Example)* | minus 90.0 |
| Retained free cash flow *(Example)* | 90.2 |
| Bolt-on acquisitions *(Example)* | minus 40.0 |
| Share buybacks *(Example)* | 0.0 |
| Other (pension contributions, FX) *(Example)* | minus 10.2 |
| Change in net debt *(Example)* | Decrease of 40.0 (640.0 to 600.0) |

*Example check:* cash flow from operations = EBITDA 450.0 minus interest
30.0 minus tax 78.8 minus the increase in working capital 21.0 minus
closure and litigation cash costs 20.0 = 300.2; 300.2 minus 120.0 =
180.2; 180.2 minus 90.0 = 90.2; 90.2 minus 40.0 minus 10.2 = 40.0,
equal to the fall in net debt from 640.0 to 600.0.
Reconcile your own figures line by line to the cash flow statement and
the net debt note, and explain every difference above a materiality
threshold.

## 6. Forecast and stress scenarios

<!-- Guidance: Project at least two years of base case and run a downside stress that a downturn plausibly produces. Questions: at which point does the rating trigger break, how much headroom is left, how fast can management cut capex and dividends? Pitfall: a stress that cuts revenue but keeps margins flat. -->

Explain the base-case drivers (volume, price, input costs, savings,
capital expenditure, dividends) and run at least one severe but
plausible stress, calibrated to the last downturn.

| EUR m, FY2027E | Base | Stress *(Example)* | Comment |
|---|---|---|---|
| Revenue | 3,150.0 | 2,502.9 | Revenue minus 16.6% vs FY2026 (volume minus 19%, price plus 3%) |
| EBITDA | 519.8 | 292.5 | 35% below FY2026 (margin 11.7%), deeper than the last downturn (minus 28%) |
| Net interest expense | 28.0 | 34.0 | Revolver drawn, higher rates |
| Net debt | 480.1 | 700.0 | Lower cash flow; restructuring cash costs without savings; dividend held |
| Net leverage | 0.92x | 2.39x | Inside the 2.75x internal downgrade trigger |
| EBITDA interest cover | 18.6x | 8.6x | Still adequate |

*Example check:* 3,000 x 0.81 x 1.03 = 2,502.9; 450 x 0.65 = 292.5;
700 / 292.5 = 2.39x; 292.5 / 34 = 8.6x. At the stressed net debt, the
trigger breaks only if EBITDA falls to 700 / 2.75 = EUR 254.5m, 43%
below FY2026, which is the headroom to quote to the committee. State the management actions assumed in the stress (for example
dividend cut, capital expenditure deferral) separately from the
unmitigated result, and the probability the analyst attaches to it.

*Example:* the stress above is unmitigated except for the held dividend.
Management could also defer about EUR 40m of capital expenditure and
stop bolt-on acquisitions, which would bring net debt down to about
EUR 660m and leverage to 2.26x. The analyst attaches a probability of
about 10% to a downturn of this depth within the life of the notes and
concludes that the KB-6 grade survives it, with a negative outlook
likely during the trough.

## 7. Liquidity and refinancing

<!-- Guidance: Compare sources and uses of liquidity over the next 12 to 24 months and show the maturity profile. Questions: can the issuer meet all maturities without market access, are bank lines committed and covenant-free? Pitfall: counting an uncommitted or covenant-restricted facility as available liquidity. -->

| Sources (2027-07-01 to 2028-06-30) | EUR m | Uses (same period) | EUR m |
|---|---|---|---|
| Cash and equivalents at 2027-06-30 *(Example)* | 65.0 | Debt maturities: bank loans due 2028-03-31 *(Example)* | 100.0 |
| Undrawn committed revolver (EUR 300m, maturity 2030) *(Example)* | 300.0 | Lease principal payments *(Example)* | 35.0 |
| Forecast FFO (half of FY2027E 396.4 plus half of FY2028E 430.3) *(Example)* | 413.4 | Capital expenditure *(Example)* | 129.0 |
| | | Dividends (DPS 2027E EUR 0.95 x 120m) *(Example)* | 114.0 |
| | | Restructuring cash costs *(Example)* | 26.0 |
| | | Working capital increase *(Example)* | 22.6 |
| Total sources | 778.4 | Total uses | 426.6 |

*Example check:* 65.0 + 300.0 + 413.4 = 778.4; 100.0 + 35.0 + 129.0 +
114.0 + 26.0 + 22.6 = 426.6; liquidity ratio 778.4 / 426.6 = 1.8x.
FY2028E FFO = EBITDA 561.2 minus interest 26.0 minus tax 104.9 = 430.3.

| Maturity profile, EUR m | 2027 | 2028 | 2029 | 2030 | 2031 | Later |
|---|---|---|---|---|---|---|
| 5.25% senior notes *(Example)* | 0 | 0 | 0 | 0 | 400 | 0 |
| Bank loans *(Example)* | 0 | 100 | 0 | 0 | 0 | 0 |
| Lease liabilities, contractual principal *(Example)* | 35 | 32 | 28 | 22 | 18 | 15 |
| Revolver drawn *(Example)* | 0 | 0 | 0 | 0 | 0 | 0 |

Gross debt at FY2026 is EUR 650m (notes 400, bank loans 100, leases
150), consistent with section 5. The revolver carries one leverage
maintenance covenant at 3.50x, so it stays available in the stress
case (2.39x). Note any financial covenants in bank
facilities and the headroom against them, because a bank covenant
breach can accelerate the bonds through cross-default.

## 8. Capital structure and recovery analysis

<!-- Guidance: Rank every claim and estimate what the bond recovers in a default, using a distressed enterprise value and a waterfall. Questions: what is senior to the bond, how much secured debt can be added under the terms, what is the structural subordination to non-guarantor subsidiaries? Pitfall: estimating recovery on today's capital structure while the documents allow much more secured debt before default. -->

Estimate recovery with a simple waterfall. Assume a default capital
structure (for example revolver fully drawn) rather than today's.

$$
\text{Recovery rate} = \frac{\min\left(\text{Value available to the class},\ \text{Claims of the class}\right)}{\text{Claims of the class}}, \qquad \text{LGD} = 1 - \text{Recovery rate}
$$

| Waterfall at default | EUR m |
|---|---|
| Distressed EBITDA (60% below FY2026) *(Example)* | 180.0 |
| Distressed multiple *(Example)* | 5.0x |
| Distressed enterprise value *(Example)* | 900.0 |
| Less administrative and priority claims (5%) *(Example)* | minus 45.0 |
| Value available to secured creditors | 855.0 |
| Revolver, assumed fully drawn and secured at default *(Example)* | minus 300.0 |
| Value available to senior unsecured creditors | 555.0 |
| Senior unsecured claims: notes 400 + bank loans 100 + lease liabilities 150 + trade and other 300 *(Example)* | 950.0 |
| Senior unsecured recovery | 58.4% |
| Loss given default (LGD) | 41.6% |

*Example check:* 180 x 5.0 = 900; 5% of 900 = 45; 900 minus 45 minus
300 = 555; 555 / 950 = 58.4%. The revolver is unsecured today; the
stress assumes banks take security within the negative pledge basket
in section 9 before default; if it ranks unsecured, recovery rises to
855 / 1,250 = 68.4%. Lessors are shown as unsecured claimants for
simplicity; in practice they can repossess leased assets, which lowers
both the value and the claims in the waterfall. A default after the
bank loans are repaid in 2028 would leave fewer claims alongside the
notes.
Consider structural subordination: claims at non-guarantor
subsidiaries rank ahead of the notes against those subsidiaries'
assets.

Choose the distressed EBITDA and multiple from evidence: the EBITDA at
which the issuer would actually run out of liquidity or breach its
revolver covenant, and the multiples paid for distressed assets in the
sector. Show the sensitivity: in the example, each turn of distressed
multiple adds EUR 171m (EUR 180m less 5% priority claims) to the value
available to senior unsecured creditors, or about 18 points of recovery
(171 / 950), so a recovery estimate quoted to one decimal place
overstates the precision of the inputs.

## 9. Bond terms and covenants

<!-- Guidance: Summarise the terms that change risk or value: ranking, guarantees, call and put features, covenants, events of default. Questions: can the issuer add secured debt ahead of us, is there change-of-control protection, are there cross-default thresholds? Pitfall: assuming high-yield style covenants in an investment-grade bond. -->

| Term | Detail |
|---|---|
| Instrument *(Example)* | EUR 400m 5.25% senior unsecured notes due 2031-06-15 |
| Issuer and guarantors *(Example)* | Halvard Tools Finance B.V.; guaranteed by the parent and material subsidiaries |
| Ranking *(Example)* | Senior unsecured, pari passu with the bank loans and the revolver |
| Coupon and day count *(Example)* | 5.25% fixed, annual on 15 June, ACT/ACT (ICMA) |
| Optional redemption *(Example)* | Make-whole call at government + 25 bp until 3 months before maturity, then par |
| Change of control *(Example)* | Holder put at 101% if a change of control is followed by a downgrade below investment grade |
| Negative pledge *(Example)* | Limits secured debt, with a general basket of 15% of consolidated net tangible assets |
| Sale and leaseback *(Example)* | Limited, shares the negative pledge basket |
| Merger covenant *(Example)* | Successor must assume the notes |
| Financial maintenance covenants *(Example)* | None |
| Cross-default / cross-acceleration *(Example)* | Cross-acceleration above EUR 50m |
| Governing law *(Example)* | English law |
| Use of proceeds label *(Example)* | None (for labelled bonds, record the framework and the external review) |

Explain covenant strength: whether covenants are incurrence or
maintenance based, the size of the permitted baskets relative to
EBITDA, and the room they leave for actions that hurt bondholders
(secured borrowing, asset transfers to non-guarantors, large
distributions). Record any consent solicitation or amendment history.

## 10. Valuation and relative value

<!-- Guidance: Show yield, spread, duration and convexity, compare with peers and the curve, and test spread compensation against expected loss. Questions: is the investor paid for default risk and liquidity, how much spread widening can the carry absorb? Pitfall: comparing spreads of bonds with different maturities, ranking or call features without adjusting. -->

### 10.1 Yield, duration and convexity

Price of a fixed-coupon bond with $n$ remaining periods, coupon per
period $C$, face value $F$ and yield per period $y/k$ ($k$ coupons a
year; $k = 1$ for the annual-pay example):

$$
P = \sum_{t=1}^{n} \frac{C}{(1 + y/k)^{t}} + \frac{F}{(1 + y/k)^{n}}
$$

Modified duration and the second-order price approximation:

$$
D_{\text{mod}} = \frac{D_{\text{Mac}}}{1 + y/k}, \qquad \frac{\Delta P}{P} \approx -D_{\text{mod}}\,\Delta y + \tfrac{1}{2}\,\text{Convexity}\,(\Delta y)^{2}
$$

| Measure | Value *(Example)* |
|---|---|
| Clean price | 98.50 (accrued interest zero on a coupon date) |
| Yield to maturity | 5.68% (annual; 4 periods, coupon 5.25 per period) |
| Interpolated 4-year government yield | 4.08% |
| Spread over government | 160 bp |
| Macaulay duration | 3.71 years |
| Modified duration | 3.51 |
| Convexity | 16.2 |
| Price effect of +50 bp | minus 1.73% (to about 96.79) |
| DV01 per EUR 1m nominal | about EUR 346 |

*Example check:* discounting four coupons of 5.25 and the redemption of
100 at 5.68% gives 98.50; 3.71 / 1.0568 = 3.51; minus 3.51 x 0.005 +
0.5 x 16.2 x 0.005 squared = minus 1.73%; DV01 = 3.51 x (EUR 1m x
98.50%) x 0.0001 = about EUR 346.

### 10.2 Spread versus expected loss

$$
\text{EL} = \text{PD} \times \text{LGD} \times \text{EAD}
$$

| Measure | Value *(Example)* |
|---|---|
| Internal 5-year cumulative PD for KB-6 | 2.0% |
| LGD from section 8 | 41.6% |
| Expected loss over 5 years, per unit of exposure | 0.83% |
| Approximate annual expected loss | about 17 bp |
| Spread over government | 160 bp |
| Spread after expected loss | about 143 bp |
| One-year break-even spread widening (spread divided by modified duration) | about 46 bp |

*Example check:* 2.0% x 41.6% = 0.832%; 0.832% / 5 = 0.166% a year,
about 17 bp; 160 minus 17 = 143 bp; 160 / 3.51 = 45.6 bp. The
remaining life is four years, so applying the five-year PD per year is
slightly conservative. The break-even ignores roll-down and the
shortening of duration over the year; state the simplification.

### 10.3 Relative value

| Bond | Internal grade | Maturity | Spread (bp) | Spread per year of duration (bp) | Comment |
|---|---|---|---|---|---|
| Halvard 5.25% 2031 *(Example)* | KB-6 | 2031-06 | 160 | 46 (modified duration 3.51) | Proposed |
| Peer A 4.75% 2031 *(Example)* | KB-5 | 2031-03 | 145 | 42 (modified duration 3.45) | Stronger balance sheet, less cyclical |
| Peer B 6.00% 2031 *(Example)* | KB-7 | 2031-09 | 210 | 58 (modified duration 3.60) | High yield, weaker covenant protection |
| Industrials index, 5-year bucket *(Example)* | n/a | n/a | 130 | n/a | Benchmark |

Conclude whether the bond is cheap, fair or rich against its internal
grade, peers and the issuer's own curve, and which instrument in the
capital structure offers the best risk-adjusted value. Consider
liquidity (issue size, bid-ask spread, dealer coverage) and index
eligibility, including the price effect of a downgrade below
investment grade.

*Example conclusion:* the Halvard notes pay 160 bp against a fair range
of 135 to 150 bp for the grade, and 46 bp of spread per year of
duration against 42 bp for the stronger Peer A. The extra spread more
than covers the annual expected loss of about 17 bp and leaves about
46 bp of break-even widening over one year. The notes are cheap against
the grade, so the recommendation is Overweight, sized so that a
downgrade to high yield (an estimated 60 bp to 80 bp of widening) stays
within the strategy's loss budget.

## 11. ESG credit factors

<!-- Guidance: Include only factors that can change cash flows, asset values, refinancing access or default risk over the life of the bond. Pitfall: a generic ESG score with no link to the credit view. -->

| Factor | Credit relevance | Effect on internal rating | Evidence |
|---|---|---|---|
| Product liability and safety *(Example)* | Recall cost and litigation | None | Clean five-year record |
| Transition to battery platforms *(Example)* | Capital expenditure and competitive risk | Embedded in business risk score | Product roadmap |
| Governance and financial policy *(Example)* | Board's leverage commitment | Supportive | Section 4 |
| Supply chain labour standards *(Example)* | Reputational and regulatory | None currently | Supplier audit summary |
| [Factor] | [Relevance] | [Notch effect or none] | [Evidence] |

For labelled bonds (green, social, sustainability-linked), record the
framework, the external review and the coupon step-up mechanism, and
check alignment with the firm's Responsible Investment Policy
(`finance/responsible-investment-policy`).

## 12. Risks, monitoring triggers and review

<!-- Guidance: Turn the analysis into measurable triggers that force a re-review, and set the review calendar. Questions: what would move the internal rating by a notch, what market signal would prompt action? Pitfall: triggers based only on agency rating actions, which usually lag. -->

| ID | Trigger | Threshold | Action | Owner |
|---|---|---|---|---|
| CRT-001 *(Example)* | Net leverage (reported or forecast) | Above 2.75x | Review internal rating; consider downgrade to KB-7 | [@credit-analyst] |
| CRT-002 *(Example)* | EBITDA interest cover | Below 5.0x | Review internal rating | [@credit-analyst] |
| CRT-003 *(Example)* | Debt-funded acquisition or buyback | Above EUR 500m | Event review within 5 business days | [@credit-analyst] |
| CRT-004 *(Example)* | Spread move relative to peers | 40 bp wider than peer group | Relative value review | [@portfolio-manager] |
| CRT-005 *(Example)* | Agency outlook change to negative | Any agency | Review within 10 business days | [@credit-analyst] |
| CRT-006 *(Example)* | Liquidity ratio | Below 1.5x | Review and stress refresh | [@credit-analyst] |
| [CRT-NNN] | [Trigger] | [Threshold] | [Action] | [@owner] |

Schedule: full refresh annually after audited results, short updates
after each interim report, and event reviews when a trigger fires.
Record the outcome of each review in the revision history.

### 12.1 Regulatory context for investor credit assessment (as of 2026-10; check local law)

| Jurisdiction | Reference | Relevance |
|---|---|---|
| European Union | Regulation (EC) No 1060/2009 on credit rating agencies, Art. 5a (inserted by Regulation (EU) No 462/2013): financial institutions make their own credit risk assessment and do not rely solely or mechanistically on ratings | Evidence of independent analysis |
| European Union | Directive 2013/36/EU (CRD) Art. 77 (check the paragraph in the consolidated text): supervisors monitor that institutions do not rely solely or mechanistically on external ratings | Credit institutions (and investment firms still under CRD) |
| United States | Dodd-Frank Act section 939A: federal agencies were required to review and remove references to credit ratings from their rules | Internal credit standards replace rating references in several rules |
| United States (registered advisers) | 17 CFR 275.204-2(a)(7): records of written communications relating to recommendations | Keep this analysis and its versions |
| [Jurisdiction] | [Reference] | [Relevance] |

## 13. Glossary and references

<!-- Guidance: Define every abbreviation and list the sources used, with dates. -->

### 13.1 Glossary

| Term | Meaning |
|---|---|
| Spread | Extra yield of the bond over a government bond or swap rate of similar maturity |
| bp | Basis point: one hundredth of one percentage point |
| Yield to maturity | Single discount rate that equates the bond's cash flows to its price |
| Modified duration | Approximate percentage price change for a 1 percentage point change in yield |
| Convexity | Curvature of the price-yield relationship, used to refine the duration estimate |
| DV01 | Price change in currency for a 1 bp change in yield |
| PD | Probability of default over a stated horizon |
| LGD | Loss given default: share of exposure lost after recovery |
| EAD | Exposure at default |
| FFO | Funds from operations: EBITDA less cash interest and cash tax, as defined in section 5 |
| Negative pledge | Covenant limiting the issuer's ability to grant security to other creditors |
| Structural subordination | Lower priority of parent creditors against assets of subsidiaries that have not guaranteed the debt |
| Make-whole call | Issuer's right to redeem early at the present value of remaining payments discounted at a reference rate plus a margin |

### 13.2 References

| Reference | Version or date checked | Use |
|---|---|---|
| Regulation (EC) No 1060/2009, as amended by Regulation (EU) No 462/2013, eur-lex.europa.eu | Consolidated text, check current version | Own credit assessment |
| Directive 2013/36/EU, Art. 77, eur-lex.europa.eu | Consolidated text, check current version | Reliance on external ratings |
| Dodd-Frank Wall Street Reform and Consumer Protection Act, section 939A | Statute, check current text | Removal of rating references |
| 17 CFR 275.204-2, ecfr.gov | Current text checked 2026-10-25 | Record keeping |
| [Bond offering memorandum or prospectus] | [Date] | Terms in section 9 |
| [Issuer annual report and interim reports] | [Period] | Section 5 |
| [Internal rating methodology] | [Version] | Section 1.1 |

## Standard and licence note

Based on standard fixed income analysis methods (yield, duration,
convexity, spread and expected loss, which are general financial
formulas) and on public law cited by number: EU legislation on EUR-Lex
(reuse authorised with acknowledgement) and US federal law and rules
(US government works). No rating agency methodology, professional
curriculum or proprietary scorecard is reproduced. Halvard Tools and
Kestrel Bay Capital are fictional, and nothing here is a
recommendation on any security. This template is original text
written for this collection; check the current official versions of
the cited laws before use. Template licence: MIT.