I agree with Zachary. Imagine you are a Boeing and your chances of going bankrupt are increasing. Any airline company would smell trouble and start buying Airbuses. How/where will I find my spare parts if Boeing does not exist anymore?
@Jon Lee If you look at the very first column, the debt to capital ratio increases linearly with a 10 p.p. increment. I don't believe that an increase from 40% debt to 50% debt makes the company from a virtually safe one to a half-dead one.
@@Михаил-д6х1з If you refer to slide 50 and assume that the interest coverage calculation is correct, then the B- rating is correct as well. One useful thing to note if you refer to slide 48 of the rating table is that the interest coverage ratio within the "B" band is much more narrow compared to other classes of ratings.
@Jon Lee This can't be right and doesn't pass the common sense test, I don't need calculations in this instance to see that something is flawed in the table on Slide 94. The prob. of default cannot go from a fraction of a percentage to a 50/50 coin flip just from raising debt by 10 p.p.
i dont get how rating can affect EBITDA
People stop doing business with you if you have a high likelihood of going bust.
I agree with Zachary. Imagine you are a Boeing and your chances of going bankrupt are increasing. Any airline company would smell trouble and start buying Airbuses. How/where will I find my spare parts if Boeing does not exist anymore?
it is the indirect cost of bankruptcy
52:00 This can't be right, Professor. Your probability of default hikes from 0.66% at 40% debt ratio to 45% at 50% debt ratio.
If U refer to slide 94 in the lecture notes, there are still come classes of ratings between A (0.66%) and B- (45%).
@Jon Lee If you look at the very first column, the debt to capital ratio increases linearly with a 10 p.p. increment. I don't believe that an increase from 40% debt to 50% debt makes the company from a virtually safe one to a half-dead one.
@@Михаил-д6х1з If you refer to slide 50 and assume that the interest coverage calculation is correct, then the B- rating is correct as well. One useful thing to note if you refer to slide 48 of the rating table is that the interest coverage ratio within the "B" band is much more narrow compared to other classes of ratings.
@Jon Lee This can't be right and doesn't pass the common sense test, I don't need calculations in this instance to see that something is flawed in the table on Slide 94. The prob. of default cannot go from a fraction of a percentage to a 50/50 coin flip just from raising debt by 10 p.p.