managing credit and counterparty risk 1 marshall bohbrink vp risk management & treasurer...

Managing Credit and Managing Credit and Counterparty RiskCounterparty Risk

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Marshall BohbrinkMarshall Bohbrink

VP Risk Management & TreasurerVP Risk Management & Treasurer

GROWMARK, Inc.GROWMARK, Inc.

November 9, 2009November 9, 2009

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30-Day LIBOR Rate - 1 Year 30-Day LIBOR Rate - 1 Year

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SAFETY AND SAFETY AND INSURANCEINSURANCE

POLICY AND POLICY AND PROCEDURESPROCEDURES

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Various Types of Risks (ERM)Various Types of Risks (ERM)Commodity price riskCommodity price risk

Interest rate exposureInterest rate exposure

Governmental and Regulatory issuesGovernmental and Regulatory issues

Property and LiabilityProperty and Liability

Strategic issuesStrategic issues

Succession planningSuccession planning

Disaster RecoveryDisaster Recovery

Credit and CounterpartyCredit and Counterparty

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Do you roll the dice with credit?

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Types of Credit and Types of Credit and Counterparty RisksCounterparty Risks

Accounts receivable

Vendor prepayments

Deposit or down payments

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Types of Credit and Types of Credit and Counterparty RisksCounterparty Risks

Derivative Transactions– Interest Rates– Foreign currency– Commodity

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Types of Credit and Types of Credit and Counterparty RisksCounterparty Risks

Contractual– Fixed price– Hold harmless– Indemnification– Make whole– Moral/Failure to deliver

Product or Work Quality

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How to Forecast and MitigateHow to Forecast and Mitigate

Analytical analysisAnalytical analysis

Subjective analysisSubjective analysis

Forms of financial supportForms of financial support

Proactive vs reactive strategiesProactive vs reactive strategies

Written policiesWritten policies

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How to Forecast and MitigateHow to Forecast and Mitigate

Analytical analysis– Review financials– Ratio analysis– Obtain credit scores– Bank or vendor references– Signed credit application– Industry comparatives or

benchmarks

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How to Forecast and MitigateHow to Forecast and Mitigate

Subjective AnalysisSubjective Analysis– Reputation– Personal success– Years in the business– Personal references– View of management skills– Quality of operations or business

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How to Forecast and MitigateHow to Forecast and Mitigate

Financial Support– Letter of Credit– Security filing– Guarantee

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How to Forecast and MitigateHow to Forecast and Mitigate

Proactive vs. Reactive Risk ManagementProactive vs. Reactive Risk Management– Do the homework– Early and often– Be fair but firm– Know the limits– Create a balance – Adjust to the times

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How to Forecast and MitigateHow to Forecast and Mitigate

PoliciesPolicies– Board risk managementBoard risk management– Credit approvalCredit approval– Communication requirementsCommunication requirements– In writingIn writing

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Or is it being managed?Or is it being managed?

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