Risk assessment

In this article we explain Trine’s method of conducting risk assessments on borrowers.

Lillemor Levin avatar
Written by Lillemor Levin
Updated over a week ago

Initial risk assessment

The risk assessment starts with a comprehensive due diligence at the start of the relationship with a borrower which then follows a quarterly cadence, meaning that each quarter we follow up on the risk and monitor any changes.

The initial risk assessment captures observations during Due Diligence, potential risk connected to those observations, mitigants to prevent such risk from materialising, and lastly, this turns into what we call the residual risk towards our investors.

Residual risk is observed risks that we are not able to mitigate and thus remain as part of the risk taken when investing in the loan. The residual risk is described in short and illustrated by a risk level from low to high on the specific loan. The following risk categories are the residual risk covered by our risk assessment:

  • Operational risk
    When assessing the operational risk of the company we focus on the borrower's experience and track record in managing assets and technical competency and efficiency. We also look at the borrower's ability to conduct assessment of new off-takers as well as internal procedures around the environment and safety work of the borrower.

  • Portfolio risk
    When assessing the portfolio risk we concentrate on the portfolio of projects or equipment being financed and how reliable the cash flows generated by those assets are over time. We also look at the creditworthiness of the off-takers and how diversified the portfolio is.

  • Financial risk
    In financial risk we focus on three areas; ability to service debt, currency exposure and repatriation of funds. The main assessment is to forecast the revenues and costs of assets over time in order to simulate the ability of the borrower to service debt in both the short and long term. As part of this assessment a sensitivity analysis is also conducted in order for us to determine how resilient the borrower is to changes in revenues and costs.

  • Technical risk
    The technical risk focuses on the quality of installations as well as choice of equipment and maintenance of such equipment.

  • Sponsor risk
    The sponsor is the group or investor owning the equity of the projects. We do assess the key decision makers of the company and their experience as well as what type of equity investors are involved and if they will be able to provide continuous support.

  • Country risk
    A country assessment is conducted in order to determine the market conditions and its effect on the proposed transaction. We look at different areas including; market potential, ease of doing business, credit rating, contract enforceability, regulatory risk, political risk, macro economic and FX risk.

Quarterly review

Trine puts long-term relationships with borrowers at the forefront. It has therefore been important for us to develop a comprehensive ongoing monitoring of our portfolio as we disburse to borrowers over many years and always need an updated view on their performance.

Our quarterly review of borrowers consists of a report request sent by Trine to the borrower containing financial and general operational updates of the company. This is assessed together with a quarterly update meeting with the borrower to produce an updated quarterly assessment where we identify any potential risk we want to monitor closer for the next quarter.

More details are available on our credit assessment and pricing including our Credit Policy. If you would like to find out more, please email hello@trine.com.

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