You are performing credit analysis for a bank and need to evaluate a publicly traded commercial borrower’s request for a non-owner occupied commercial real estate loan. If the borrower request is approved, the loan will be secured by a property valued at $22.5 million and loan payments will be repaid using the project’s annual Net Operating Income (NOI) of $1.675 million.

You have been presented with the borrower financial information shown below.

a) Assess the creditworthiness of this borrower using an Altman Z Score.

b) Determine a maximum loan amount if you are only permitted to lend up to 80% of the property value or a loan with a debt coverage ratio (NOI/Annual Loan Payments) greater than 1.25.

(Loan Terms: Equal Monthly Payments of Principal & Interest, 20 Year Amortization, 5% Annual Rate)

2020

Cash                                                   210

Accounts Receivable                         20

Inventories                                         25

Total Assets                                        1,831

Current Liabilities                             120

Long Term Debt                                1,112

Total Liabilities                                   1,275

Book Equity                                        556

Retained Earnings                            120

EBIT                                                       401

Market Value Equity                       1,623

Revenue(Sales)                                1,889