Why does a CFO need to worry about her company’s access to a legally binding bank line of credit? Maybe bank lines of credit are not as committed as they seem, and maybe there are times when a borrower needs to worry about a lender’s credit rating. Koeppel was not alone. Mark Shamber (CFO of United Natural Foods, which has a $400 million credit facility with banks) reportedly “now carefully tracks the financial reports of the publicly traded members of his bank group.”
A formal credit line (sometimes known as a revolving credit facility or a loan commitment) is a legally binding commitment for which a bank has charged a fee, which allows the borrower to take down funds at a certain spread over a base rate. Bank lines of credit and cash holdings are the two most popular liquidity management tools used by corporations (Lins, Servaes, and Tufano, 2007). Sufi (2007) finds that 85% of firms in his sample obtained a line of credit between 1996 and 2003, and the line of credit represents an average of 16% of book assets. In Lins et al.’s (2007) international sample, the median line of credit is equal to 15% of book assets, whereas cash holdings comprise only 9% (among which only 40% are not tied up for day-to-day operations).
Credit risk is defined as the risk of loss resulting from failure of obligors to honor their payment obligations. The 1988 Basel Accord (“Basel I”), issued by the Basel Committee on Banking Supervision, is a framework for credit risk measurement and requires banks to maintain a capital to risk-weighted asset ratio of at least 8%. The 2004 Basel Accord (“Basel II”) is a revision of Basel I, aiming to promote the soundness of the financial system. It is based on three pillars: (1) minimum capital requirements; (2) supervisory review processes; and (3) market discipline. Keeping the capital to risk-weighted asset ratio of at least 8% requirement of the first Basel accord, the revision adjusts capital requirements to credit risk, operational risk and market risk. Credit risk in this context is the focus of this paper.
Basel II allows banks to evaluate the credit risk using either a standardized approach or an internal ratings-based (IRB) approach. The standardized approach relies on external ratings, such as those assigned by external credit assessment institutions, to determine risk weights for capital charges, whereas the IRB allows banks to develop their own internal ratings for risk-weighting purposes subject to supervisory approval and strict disclosure requirements. Some large banks start with the IRB approach. However, most banks start with the standardized approach and progress toward the more advanced IRB approaches that generate lower capital charges as they meet incremental requirements.
By virtue of their inherent parallel redundancy, heat pipes (HP) are logical elemental building blocks for the construction of spacecraft radiators. In pumped loop space radiators, a micrometeoroid puncture of a cooling-fluid carrying tube would cause eventual loss of cooling fluid, thus leading to failure of the radiator. In contrast, space radiators composed of a large number of heat pipes would be relatively immune to puncture from micrometeoroids or small space debris because loss of an individual heat pipe, whose function is completely independent of that of its neighbors, would result only in the loss of that small fraction of total radiating area represented by the punctured heat pipe’s radiating surface. Thus, overall radiator reliability can be significantly enhanced, even with lower wall thickness of its heat pipe elements, which also would reduce radiator mass.
Increased survivability coupled with reduced mass is of strategic importance in spacecraft power system radiators, since past studies of power systems with either solar or nuclear heat sources have shown (Juhasz and Jones, 1986, Brandhorst et al., 1991) that radiator weight accounts for a significant portion of overall spacecraft launch mass. This is especially true for dynamic energy conversion systems utilizing the Brayton or Stirling thermodynamic cycles, since these systems have relatively low mean effective heat rejection temperatures. Thus, application of graphite-carbon composite technology to space radiator heat pipes will lead to even greater savings in the total Earth-to-orbit mass that needs to be launched for a given mission, and thereby contribute to the “low-cost access to space” initiative, which is a goal to be implemented during the early decades of the 21st century.
