Instruction
Assignment 7: Bond Credit Rating - Submit One (1) Hard Copy per Team
Read the articles, “Corporate Bond Analysis: What to Consider (AAII)”and “S&P Corporate Ratings Criteria.” The links to these reports can be found in the F303 Bonds II Module of Canvas. The AAII article discusses the Four C’s of Credit (Character, Capacity, Collateral and Conditions) that are used when analyzing corporate bonds. This structure is designed to highlight keys to examining a corporation’s willingness and ability to pay their debt obligations. As with all of the assignments this semester, Assignment 7 was discussed in class.
Write a five (5)-page report (to include tables) in which you COMPARE and CONTRAST the Four C’s of Credit for the Johnson & Johnson and Boeing Co. bonds shown below and DESCRIBEwhether you believe their bond credit ratings are justified or not.
IssueCoup(%)MatRatCallJohnson & Johnson 4.50009/01/2040AAAYesBoeing Co5.87502/15/2040AYes
These two bonds can be found using the Search box in the bond section of FINRA. FINRA Bond Market Datawww.finra.org/marketdataClick on “Bonds” on the left-hand side.Click on “Corporate” circle.Click on “Bonds” circle.Type Johnson (my screen hangs up on Johnson & Johnson) or Boeing Co in “Issuer Name” box.
In your report you should verbally DISCUSS management Character (subjective analysis of the way management runs the firm), Capacity (calculate ALL of the seven (7) financial ratios found in Table 1 of the S&P Rating Criteria Report for each firm and for each year over the past three years), Collateral (value and liquidity of assets) and how certain Conditions might affect each firm’s ability to repay its debt.
This is a typical CFA Level 2 Exam type of question. Use the past 3 years of annual Consolidated Financial Statements for each firm in your analysis (i.e. consider the average and trend in the seven capacity related financial ratios and not just the most current). As you learned in Assignment 1, you can go directly to the firm’s web site where the current and historical Annual Financial Statements can be found.