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April 30, 2024
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http://www.distressed-debt-investing.com/
I have been reading this blog and it is very useful thanks.
If you have access to a Bloom terminal, check out their newsletters for Rx.
I think you should also be able to not only express your interests in a certain company, but specific aspects of its cap structure.
Never knew about that on bloomberg, where is it exactly?...I'm lazy.
BRIE ; they have a bunch. Rx, LevFin, M&A, Euro Econ, Regs, etc.
Great thanks. Will check this out.
Are you sure you have a good grasp of valuation and cap structure? I've interviewed a lot of 1st and 2nd year analysts at even elite boutiques who clearly don't grasp the concepts, even if they can populate a template.
Youre right... I suppose thats something you can never prep enough considering the complexity and I will be spending a lot of time this weekend on that. Anything in particular you have seen your canidates stumble on? Any general ideas or words of advice would be appreciated. Thanks.
Interested to hear what most people have trouble with. What do you ask that trips people up?
Most people can get a basic waterfall but throw in something like Holdco/Opco (easy enough, depending on what's securing the debt at each) or Holdco and a couple Opcos with parent guarantees and/or cross-guarantees (trickier) and they rarely get the flow of value.
I understand this as the following, the HoldCo would be structurally subordinate to the OpCo in this instance. If the debt at the HoldCo level has a guarantee on OpCo assets, it should be pari to the OpCo's debt but, would not be senior. Is that the right way of thinking about it? Essentially, I understand it as the value flows up from the OpCos to the hold co's but, it gets more complex i you add guarantees / negative pledges.
Forgive my ignorance - can you please explain cross-guarantee vs. parent guarantee? I don't think Moyer addresses this and a google search didn't reveal what these are. If you have any resources you recommend to learn this, let me know and I'll dig in. Thanks in advance
Are there any good primers on this (in addition to Moyer)? Thanks in advance
Moyer's the best in terms of practical learning. You can also look for the Houlihan distressed M&A case study (google it -- think it was for a golf equipment company). Other good resources are Wachtell's distressed M&A guide and Whitman's book, Distressed Investing (although I wouldn't call Whitman a great distressed investor). The Vulture Investors is a good read as well.
Thanks I've been through the HL case study. Will take a look at the other resources you recommended.
hate to bring up an old topic, but did you have your interview or you havent had it yet? Just wondering how it went
Sorry for the delay, I got extremely busy out of no-where. I've had two interviews so far and have two different ones coming next week... So all together i'm in 4 processes total but I was dropped from one last week as well (all credit / distressed or something related) I guess interviews all tend to come at once - So take it from me, definitely start prepping before you have something lined up.
If you are curious as to what I was asked about, the technicals were not pure credit questions although I would still highly recommend prepping standard bond pricing / debt technicals - when i was reading Moyer's book through my prep period it helped me be far more confident in my knowledge on company operations / valuation even though I was not directly asked questions on distressed debt.
Basically the interviewers would set up scenarios for me and have me walk through how I would evaluate them and ultimately how I would invest. IE, two companies in the same industry generating the same cash flow but, one has X in debt and the other has Y in debt. Walk through how you would examine each opportunity and ultimately which would you invest in. But would do the same for equities as well, the idea was to see how I would walk through / model these businesses, how changes in interest rates would change my approach, etc. I wish I could be more specific but, it was find of the type of stuff where you either know how a company's operations work or you don't, which hopefully you should have a handle on after working in IB. Another example for you - I would be asked about capacity utilization in a factory and how would the bottom line change if revenues increased by X given certain fixed and variable costs.
Hope that helped! Now I need to get to prepping for these other ones.
On your last note: worth people reading about absorption costing for cogs and how a company can game it's profitability.
A parent guarantee is a guarantee of debt at the issuing subsidiary level by a parent in that same corporate structure. The parent guarantor may be the direct parent of the issuer or the parent of its parent, or so on. The parent guarantee means that if the issuer subsidiary can't pay the debt and doesn't have assets valuable enough to cover the debt's repayment, the creditor can look to the parent guarantor for value up to the debt's claim, and in certain "double dip" situations even beyond so. The parent guarantee only has value if the parent has value. "Having value" means there is something of worth on the asset side of the balance sheet at the parent, so if the parent guarantor's assets were comprised solely of the issuer subsidiary's capital stock, then the parent guarantee likely has no value. The parent guarantor may be an intermediate holding company that owns the capital stock of valuable operating companies other than the issuer subsidiary, thus giving the parent guarantee value.
A cross guarantee is basically the same concept, but rather than a parent guarantor situated vertically atop the issuer subsidiary, the cross guarantor is a company horizontally across from the issuer in the corporate structure or simply outside of the structure altogether, likely involved with the issuer in some sort of joint venture or partnership.
A parent or cross guarantee can be so air tight that it serves as the crux to a massive position's thesis or it can be written so loosely as to serve only as a downside risk (if lost).
Thanks - very clear explanation
Great stuff! Really helpful! Thanks a lot and good luck!
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