BANK MANAGEMENT - Final Paper (9-11 pages required!)

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Assignment Details

You will be required to write a Loan Approval Memorandum (LAM) like those used in commercial lending today and described in Chapter 4 of the text. You may choose the company that will be the focus of your analysis but it must meet the following criteria:

Be headquartered in, and publicly traded in, the U.S.

Have revenues > $500MM (million) in its 2021 FY (fiscal year)

Your analysis must address the following scenario / loan request:

Your company is creating a subsidiary to sell a new product / service and the CFO has asked your bank to provide that subsidiary with two loans that meet the following needs:

	Revolving line of credit	Commercial mortgage
Purpose	working capital	building purchase
Amount	$75MM	$50MM
Term	at least 3 years	10 years
Amortization	none	30 years

REQUIRED READING: Commercial Lending: A Decision Tree Approach, Part 2, 7th edition, by American Bankers Association, 2013, ISBN-13: 978-0-899-82682-0, ISBN-10: 0-89982-682-2

Your LAM will be written in two parts:

Loan Request Summary Use Figure 4.1 on pages 81-82 of the text as a guide. You should expand the above terms and conditions for each loan to include others that are appropriate based on our readings and discussions.

Analysis / Recommendation You will expand on the work done above to add an analytical section and recommendation. It will be longer and more narrative. Use Appendix A on pages 91-93 of the text as a guide.

See Rubric below.

The two primary and required sources of financial and other information for your company are:

The company itself. Most public firms have an Investor Relations page on their website which houses annual reports, quarterly reports, press releases, presentations, etc.

The Securities & Exchange Commissions (SEC) EDGAR System I have found to be the best source for 10-K and 10-Q reports; https://www.sec.gov/edgar/searchedgar/legacy/companysearch.html

The information about a company (history, financial statements, etc.) and details of its loan request should be analyzed using the concepts discussed during the course. The final LAM will be a concise but thorough analysis of all the salient issues and will culminate in your recommendation to approve the loan as requested, approve the loan with modified terms, or reject the loan (keeping in mind my earlier comment about the terms and conditions having been negotiated in good faith).

Here are some additional thoughts related to your Loan Approval Memo:

The Loan Request Summary section should be 2-3 pages in length. The length of the Analysis / Recommendation section will vary depending on the complexity of the company and the request. That said, 6-9 pages (excluding any exhibits / appendices) is typical. To be clear, the final document you submit will include both section and could, therefore, be 8-12 pages in length (excluding any exhibits / appendices).

Loan Request Summary section The terms you choose should be competitive (youre not the CFOs only bank) but prudent and responsible (you have shareholders and regulators).

Analysis / Recommendation section To elaborate on a comment on pg. 92, it is common practice to include summary tables in your analysis. For example, before you begin discussing the income statement you have a table summarizing the most important elements of the income statement. This avoids the need for the reader to flip back and forth from your analysis to the financial statements in the Appendices.

Analysis / Recommendation section Do not rely on elevator analysis. Its fine to say that revenues rose by X% or net profits dropped by $Y but the critically important information is why it changed and what the importance is to the loan request being considered. Answer the question So what?

Analysis / Recommendation section Think carefully about whether and how to leverage the analysis of others. Company management provides an MD&A (Management Discussion & Analysis) in its annual report / 10-K and while it cannot deceptive or inaccurate it can be incomplete or imbalanced. Equity analysts can provide quality, independent analysis but their audience is equity investors whose interests may differ from commercial lenders.

Analysis / Recommendation section I encourage you to start the Analysis / Recommendation section before you complete the Loan Request Summary section. There are parts of the second section that are not dependent on the first (e.g., company history, your industry / market analysis).

Attachments / Appendices / Exhibits I encourage you to read pgs. 82-83. For purposes of this class, its acceptable to attach the financial statements of your company (i.e., a scan of the income statement, balance sheet and cash flownothing else).

Converting the companys financials to spreads like those on pgs. 98-100 requires

software you likely dont have or a tremendous amount of time. Id rather you spend

you time thoughtfully creating the summary tables noted above and on your analysis.

Proper spelling, grammar and punctuation is expected.

MAKE SURE IT'S 9-11 pages