When determining the fundamental value of corporate, municipal and structured securities, Conning’s analysts integrate a top-down market assessment with a bottom-up focus on security-level detail.
Corporate and Municipal Credit Research
We emphasize a qualitative approach for corporate and municipal research. These entities are dynamic rather than static, with the capacity to react to external events and alter their internal profile. Consequently, a holistic approach to analysis is required, understanding not only the external factors that impact credit quality of specific issuers but also the internal capacity of each issuer to adapt and respond in the face of such forces.
Since liquidity is the primary source of repayment for debt, Conning analysts assess the consistency, stability and quality of cash generating capacity for these entities. They include:
- A company’s ability to generate cash-flow from operations
- A municipality’s ability to raise revenue
- The capital markets intent to provide financing options
Structured Research
The assets backing structured securities depend on macroeconomic, technical and other capital market factors (interest rates, curve shapes, volatility), which affect the securities’ behavior and performance. Thus, we employ numerous models to analyze these securities. We derive our assumptions for modeling from the macro environment and the specifics of each security.
The security specific attributes (bottom-up) include reviewing issuers and servicers and analyzing and using specific collateral attributes and cash flow structures. Using a variety of vendor and proprietary models, we perform stress tests to understand break-even default rates, cash flow variability and prepayment protection. The macro factors and collateral attributes are dynamic warranting continuous monitoring in order to identify potential performance issues in a timely fashion.
To learn more about Conning’s comprehensive investment services, please contact us.