SKY Harbor’s research process and credit selection targets issuers with solid credit characteristics, a high level of financial flexibility and strong operating potential. Analysts perform in-depth analysis to identify risks associated with an issuer’s Industry Outlook, Operating Potential or Financial Flexibility. Our analysis of the risks associated with an issuer’s industry evaluates cyclical and secular trends, the efficacy of industry sustainability and the regulatory environment to assess the external forces in place or looming that may impact the outlook for an issuer and its peer group. Our analysis of the risks associated with an issuer’s operating potential takes the form of a full Business Due Diligence designed to uncover the key drivers of an issuer’s business model, the soundness of its execution strategy and its sensitivity to various internal and external factors. Our analysis of the risks associated with an issuer’s financial flexibility takes the form of a robust Financial Model that is designed to assess an issuer’s long-term ability to operate within its existing capital structure and service its debt. This financial model highlights an issuer’s liquidity profile and credit trends using four to five years of historical financial data and full financial results projected out five years.
Analysts consider a broad range of ESG factors depending on the issuer and industry at various stages of our research process. Certain Governance issues are applicable across all industries, including corporate board and ownership structures, alignment of executive pay, and accounting. Other social and environmental factors, may have greater relevancy in one industry versus another. Examples of ESG factors regularly examined include:
Environmental: industrial practices, waste management, pollution prevention, safety procedures and capital expenditure/cost to maintain high standards in these areas.
Social: worker rights and benefits, pay practices, workforce diversity, employee training and retention; also consumer demographics, product liability potential, and reputation
Governance: management stability and credibility, board structure, legal risk, tax patterns, and historical treatment of bondholders.
The identification, analysis and ongoing monitoring of ESG factors through our credit research process is integral to our risk-based approach, security selection and positive investment outcomes.