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Agricultural leases issued to forestry, dairy and cash crops operators from 1980-1992 are reviewed to determine factors statistically significant in predicting risk level (probability of default and/or probability of late payment) of the lessee for each industry. From a previous study of Telmark, 1990, literature review and the Recommendations of the Farm Financial Standards Task Force financial, operator/lessee and farmer/operator variables are selected for analysis. Data obtained from Telmark,Inc. are used to develop a model to explain lease risk level of the forestry, dairy, and crops industries. Results show that for forestry the following financial, lessee/operator, and farmer/operator variables are useful in determining riskiness: operating expense to revenue, cash flow coverage, capital turnover, years in business, gross revenue, and owner's equity. The dairy results indicate that the following variables are important: current ratio, cash flow coverage, return on assets, capital turnover, operating expense to revenue, FHA loan secured, owner's equity, and gross revenue. The crop results indicate percent equity, current ratio, cash flow coverage ratio, return on assets, capital turnover, operating expense to revenue, interest to income, real estate owned, years in business, FHA loan-secured, and owner's equity are significant variables for determining lease risk. Using the results from these models, a weighted average cost of misclassifying a lease is calculated. This is used to develop a profit maximizing criterion for determining whether a lease is high or low risk. The need for future work is discussed. In the area of weighted average cost of misclassifying a lease, additional information on the costs of leasing and riskiness of the population would aid in reducing the misclassified leases in the portfolio. Further study exploring some of the unexpected results in this study would be beneficial to both the lessee and the lessor. / Master of Science

The theoretical part of thesis covers consumer credit, particular parts of credit process and credit registers. Analysis of credit risk management in a bank of concern, quality of credit portfolio and suggestion of changes in rating of retail receivables are dealt with in the practical part.

Before the global financial crisis around 2008, the priority of the credit margin was comparatively low and was not taken into consideration as much as today. Many actors believed that credit risk could be neglected at various valuations. Due to that a lot of parties went bankrupt because of the low priorities. Today, this is a natural component in the financial market due to the capital regulation CRR and the Capital requirement directives (CRD IV), which are directly related to Basel III. In this thesis the authors have created a Credit valuation adjustment model, or a CVA-model, on behalf of the consulting firm AGL who want to use it in negotiations of interest rate swap with financial institutions. Factors as expected exposure, loss given default and probability of default are estimated in order to estimate a fair value for CVA. As a final product, the authors have created a model in VBA that can price CVA for individual contracts. This model is then evaluated and a sensitivity analysis is performed to see what impact credit rating and maturity have on the result.

Thesis advisor: Philp E. Strahan / This dissertation is comprised of three essays which examine the interactions among credit market innovation, corporate finance, and information intermediaries. In the first essay, I study the role of credit default swaps (CDS) in reducing credit supply frictions for corporate borrowers. I find that firms whose CDS is included in a major CDS index--the CDX North American Investment Grade index--have significantly lower cost of debt, and in response rely more heavily on debt for external financing. To address the potential endogeneity of index addition, I use a regression discontinuity design by exploiting the index inclusion rule, which allows me to compare firms that are just above and below the index inclusion cutoff. I show that index inclusion improves the liquidity of underlying single-name CDSs, which enables constituent firms' debtholders to better hedge their credit risk exposure. My findings suggest that CDS market benefits investment-grade borrowers by alleviating the supply-side frictions in credit markets. In the second essay, we investigate the role of proxy advisory firms in shareholder voting. Proxy advisory firms have become important players in corporate governance, but the extent of their influence over shareholder votes is debated. We estimate the effect of Institutional Shareholder Services (ISS) recommendations on voting outcomes by exploiting exogenous variation in ISS recommendations generated by a cutoff rule in its voting guidelines. Using a regression discontinuity design, we find that in 2010-2011, a negative ISS recommendation on a say-on-pay proposal leads to a 25 percentage point reduction in say-on-pay voting support, suggesting strong influence over shareholder votes. We also use our setting to examine the informational role of ISS recommendations. In the third essay, I examine how Moody's ratings have responded to the introduction of Credit Default Swap (CDS) market--an important innovation in credit markets in the past decade. I find that ratings quality of CDS firms, measured as default predictive power, improved significantly after the onset of CDS trading, consistent with a disciplining role of the CDS market. I show that ratings become more accurate in terms of less failure to warn (i.e. rating a defaulter too high) which is not accompanied by a rise of false alarms. In addition, rating downgrades are significantly more likely to be preceded by negative outlook or a watch for downgrade. The results are robust to controlling for the endogeneity of CDS trading. Overall, the evidence suggests that, in response to the CDS market developments, Moody's ratings become better at differentiating bad issuers from good ones as opposed to a "cookie-cutter'' approach to more conservative ratings. / Thesis (PhD) — Boston College, 2016. / Submitted to: Boston College. Carroll School of Management. / Discipline: Finance.