Tips for managing counterparty risk

Author: Lizzie Meager | Published: 1 Feb 2017

Credit ratings alone are an ineffective way of measuring counterparty risk, according to panellists at IFLR’s European In-house Counsel Summit in London last week.

The collapse and ongoing unravelling of Lehman Brothers has made the market far more cautious
Speakers at the forum revealed how corporates have had to change their approach to due diligence in recent years. “Pre-2008, companies were happy to sign up to complicated hedging facilities without knowing who they were dealing with,” said Simon Enoch, company secretary and general counsel at Darty.

"Much like how banks have had know-your-customer (KYC) checks for some time, corporates are having to do these too now.”

He recommends considering the length of the contract being entered into and assessing if the counterparty will still be present at the end of it. “Think of the going concern, five years if it’s a revolving credit facility perhaps, or 10 if...