What do restructuring bankers do on the creditor side?

Good post.

One thing I'll say is that it's very difficult to generalize what a restructuring banker does, whether on the creditor or debtor side. The nature of the process and hence the work you do varies tremendously case to case. That's what keeps it interesting IMO and makes the analyst experience valuable because you aren't a total monkey plugging numbers into a standard model. There is no standard model.

The kind of simple waterfall analysis he is talking about is kind of representative of what an in-court process would look like. In court, you can have the various bankers debating about valuation in order to get their clients the greatest recovery. With senior bankers from each party testifying regarding valuation methodology / etc. For example, there was a recent deal I am familiar with where the debtor advisor argued in court for a low valuation based on the appraised value of the assets. This valuation left the junior most creditors out of the money getting no recovery. The junior creditors employed a DCF valuation using some optimistic assumptions. The court decided in favor of the company in this case.

Of course even if a process goes to court, there can be still ultimately be a deal struck between the parties to speed things up, with junior creditors getting more than they "deserve," just in order to speed up the process.

Out of court, the waterfall analysis is in the back of everybody's minds, as it represents what will happen if a deal can't be struck before it gets to that point. But there is plenty of incentive to avoid going to court, given how costly it is and how lengthy the process can be. As a creditor advisor your stance and the type of analysis you do could be very different depending on where your client is in the cap structure. Junior creditors are preying upon the desire of the company and senior creditors to avoid bankruptcy / potential litigation / etc, to potentially obtain a recovery far in excess of what they'd get in court. Senior creditors may be more aligned with the company or may be pushing the company towards bankruptcy if they feel the process won't eat up too much of their recovery.

nom_yourmom:

1. Restructuring bankers would typically not be retained to help creditors sell their holdings. By the time debt securities have become distressed, typically the holders of that debt will be distressed debt hedge funds who have bought well below par and want to be in that position. Creditors who no longer want to hold the debt can typically just sell it on the open market.

2. The analysis that is being performed is pretty similar on the creditor side to the debtor side, just colored by the client's interests. You're still valuing the company and doing a waterfall analysis to determine where the value stops and who gets what distribution. Generally speaking, the lower your client is in the capital structure, the higher a valuation number you're going to want to come up with. If your client is a third-lien creditor with $25B in debt above in in the capital structure, and you determine the company only has $15B of value, your client would typically get nothing in a chapter 11 bankruptcy because of absolute priority rules. So obviously your analysis would reflect the interests of your client.

So yeah, depending on where the client is in the capital structure, the creditor-side financial advisors are either arguing for a full payout in cash, or an equity stake in the newly organized company through either an out-of-court debt-for-equity swap or a chapter 11 proceeding.

Hope that was helpful

That was awesome. Very helpful. Much appreciated.

Ying-Sun1:

Which Bank is it for?

Going to apply with the usual suspects HL, etc. Just wanted to better understand what I was getting myself into.