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