credit
Loans that demant a lot of time and effort
A partnership needs to identify the objectives of the relationship. For example, I worked in a manufacturing setting establishing a partnership between a company and its union. Their common objective was to grow the business. But growth required retooling the production line and increasing automation.While the company and union had a single common objective, each also had its own separate objectives. The company wanted to improve the production rate by 25 percent while reducing work defects by 10 percent. The union did not want the company to lay off employees in the process.
This group spent a lot of time and effort documenting their objectives and involving all the partners. Because of the documentation, all stakeholders understood the outcomes expected in the partnership. They could all see what was in it for them and the other parties if the alliance achieved its goals. Before I bring parties together and develop a mutual vision of the partnership, I have each group meet separately. In these separate meetings, they create their own vision of what they want from the partnership. Then I bring the parties together to share their individual visions. Inevitably the group begins to identify areas they have in common. That is the start of the mutual vision and the first step for creating common objectives.
Estimating the level of fixed credit costs
On the macroeconomic level, capacity utilization rates are a good indicator for the level of fixed costs of the corporate sector, because the higher the utilization rates are, the less the costs of maintaining the infrastructure to generate one unit of output will be. Furthermore, an increase in industrial output hints at rising revenues and solid cash flows for the companies. This strengthens the companies’ abilities to service their debt. Therefore, credit spreads tend to tighten when capacity utilization and industrial production increase. Yet, rising cash flows tend to invoke business investment, particularly when capacity utilization rates are above average. Historically, levels above 80–82 percent have been a threshold above which the willingness to invest has increased significantly. Like capacity utilization rates, industrial production is a coincident indicator for the state of the economy. Across the business cycle, credit spreads tighten when industrial production grows, and sell off when the economy is doing poorly. Usually, when the economy is doing well, default rates tend to fall and the more positive sentiment usually leads to a lower level of risk aversion. Therefore credit investors settle with lower spreads than in times of poor economic performance.