Understanding business risk. Corporate credit quality begins with an assessment of the macro and business environment surrounding a company. This must happen before an analysis is done on the obligations, the quality of the assets or the operations. We look at three major areas when understanding business risk. Macroeconomic, which covers issues related to the government where the company operates, the political stability, FX volatility, taxes, tariffs, et cetera. The industry where the company operates, the regulatory environment, the size and nature of the market, barriers to entry, cyclicality, and seasonality. And lastly, the company risk factors. The overall size and ability to withstand shockwaves, the product mix, the customer base, shareholder expectations, quality of management. And regarding the last two items, the shareholder expectations and management, remember that management works for the board, which serves the shareholders' interests and not necessarily the creditors' interests. Ultimately, we would like to know could anything happen that would specifically affect the ability of the industry and/or the company to generate operating cash? While these three risk areas seem independent of each other, they're actually quite intersectional. More than most areas of banking, the credit-making decision is a robust conversation with many questions being asked. While credit is also very quantitative, as we will see, the qualitative risks and issues are just as important. Here we see an example of a list of country credit ratings. If the company's operations are mainly located inside one country, the sovereign rating will normally be the ceiling rating of the company or the issue, and therefore, the sovereign ratings will definitely impact the country's corporate ratings. If we think about the factors that create industry risk, competition, technological change, regulatory change, substitution risk, cyclicality, barriers to entry, we can then begin to understand whether a company's industry risk is higher or lower. Examples of high risk industries are transportation, home builders and developers, metals and mining companies, oil and gas refining, technology, hardware and semiconductors. Examples of medium risk companies are agribusiness, building materials, aerospace and defense, media and entertainment, retail and restaurants. Low risk companies would be pharmaceuticals, real estate investment trusts, railroads, logistics, transportation and infrastructure. These industries change categories over time. It was not too long ago that retail and restaurants were thought to be on the lower risk side of the medium risk, particularly retail is moving up within that category. Many of the new flashier tech companies don't really fit into this matrix because most are not credit worthy. One might ask, where are the newer technology companies that we hear about every day, the flashier ones, the Twitters, the Ubers? These types of companies don't fit into this matrix because most are not credit worthy yet.