Q&A Leveraged Finance Group @ BB

Former Leveraged Finance / DCM Analyst -> Associate at a BB, left before COVID (thank goodness or else I then would literally have no soul).
Here to help those that are looking to get some inside detail in the job role, what you actually learn, and what you need to know during interviews.
Really glad I was part of a product group vs industry, as I was actually able to help finance a VERY broad group of industry agnostic deals (gaming, tech, healthcare, industrials, CPG, etc). Pretty much all except for RE.
Looking to improve a self-help tutorial online that a colleague and I also created to help with this sort of recruiting/insider knowledge so looking to see what questions the broad population are looking for as well
Now, we're in VC/Client side
Hope to help and ask away!

 

-What were some of your favorite aspects of working in Leveraged Finance? -Some people make distinctions between modelling and "non-modelling" groups when talking about Lev Fin- in your experience do you find this to be a legitimate road block for ones career? -Did you feel like you had many options in terms of "exits"- if you could compare to coverage that would be helpful (I'd imagine you have access to some that coverage does not and vice versa) -Why did you leave and is it more difficult leaving as an associate?

Thanks!

 
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Sorry for getting to this so late, see my answers below.

-What were some of your favorite aspects of working in Leveraged Finance? I was industry agnostic, so being able to work on healthcare, industrial, gaming, etc. was fascinating. Really learned that it's better to know a niche than spread your knowledge wide (levfin is one inch deep, a mile wide, whereas coverage is a mile deep, one inch wide). Also, we worked on a TON of transactions. Some analysts/associates leave banking without ever finishing a deal. Anytime an acquisition happens that requires debt, LevFin is called up to help structure it. My last year, I was on 10+ Lead Left deals, 4 of which were M&A related. Great experience to talk about
-Some people make distinctions between modelling and "non-modelling" groups when talking about Lev Fin- in your experience do you find this to be a legitimate road block for ones career? ABSOLUTELY not. You only need to know the basics. If a Company is asking for an intense merger model, that's were the M&A team comes into play. For LevFin, all you really need to know are the basics of a cash flow model. Check out lifeandlevfin dot com, they provide a good model structure of what you need to know
-Did you feel like you had many options in terms of "exits"- if you could compare to coverage that would be helpful (I'd imagine you have access to some that coverage does not and vice versa) A lot of the opportunities I was present were credit focused (credit funds) just because the head hunters thought I'd better fit into that. It's not true at all, the modeling that you do at Levfin is the same at coverage except any IPO/equity raise type of modeling. Definitely had a lot of opportunity to go PE, especially because the shop I was at is #1 in DCM for the last 20 years
-Why did you leave and is it more difficult leaving as an associate? I left because I knew banking was the end all be all for me. I took at look at MDs and EDs and they literally told me that they chose work over family. That's not how I want to be remembered when I die. You always have to look at the endgame and look 10 years down the line to see whether IB is something you genuinely enjoy or just like because of the money. I actually did like it in my first two years, but afterwards, it was really telling at how money hungry the top MD's/Execs were and how that drove a lot of painful and hurtful comments. I'm done with finance forever, making money out of money is not fulfilling for me at all, but for others it definitely can be. 

Please let me know of any other questions, I would love to keep helping out

 
  • How much of your time was spent on repricing and general marketing material for CIB coverage? (a percentage)

  • what do you think about in a pitch: repayment capability, nuts and bolts of a credit agreement/indentures (being clever), or fee income?

  • how sophisticated are the clients you covered, disregarding the PE backed (which might be sponsors), and the large caps/What was the least sophisticated?

  • How dead would you be if you had to work in Levfin in March/April. Are the guys you know who are still there alive?

 
  • How much of your time was spent on repricing and general marketing material for CIB coverage? (a percentage) - More repricing than general marketing material for CIB. Would say 30-40% repricing, 30-40% M&A deals, balance is general marketing (very easy)

  • what do you think about in a pitch: repayment capability, nuts and bolts of a credit agreement/indentures (being clever), or fee income? Depends on the pitch, most likely terms from a credit agreement (clients only care about pricing and covenants)

  • how sophisticated are the clients you covered, disregarding the PE backed (which might be sponsors), and the large caps/What was the least sophisticated? Typically clients understand credit agreements and term sheets, they also have their own lawyers to help spell everything out for them. One thing they definitely do not understand are underwritten terms (fee structure). In the end, they just care about how much they're going to pay for all of it, and then their debt capacity / covenants. 

  • How dead would you be if you had to work in Levfin in March/April. Are the guys you know who are still there alive? Have kept in touch with some of them, it's been nonstop work for them with the understanding that bonuses are going to suck this year. Truly privileged to have left prior to all of that

 

What percentage of your group exited to a credit fund or distressed/special sits fund versus vanilla PE? How hard is it to exit to a distressed/special sits fund considering you're competing against RX bankers?

 

60% Credit Funds / Direct Lending / Distressed and Opportunistic Debt, then 40% vanilla PE

With a lev Fin background, I would say it's much easier to exit to a distressed/special sits fund because of all the legal experience you gain from being in lev fin. Many people don't know but lev fin and DCM have a LOT more to do with legal work (covenants, credit agreements, term sheets) than industrial groups

 

Only stayed until 2nd year associate. 1st year associate is pretty standard across all of IB, it then varies when you get to 2nd year and how your group performs. Associates in general (anyone under VP) are insulated from varying bonuses as the role is not revenue generating. So regardless if the group did fantastic or absolute sh!t, they normally stay the same across the firm. Wallstreetplayboys has a good breakdown of the salary and bonuses so check them out.

Work wise, because it was so transactional, varied a ton. There were some really lucky weeks were you could leave at 6:30/7pm everyday, but normally speaking, you wouldn't leave before 8/9pm at the earliest, and then come in over the weekends. 60/70 hours are typical, but when you're in an M&A debt financing transaction, you're going to be working 4 hours at least on the weekends per day and then just having to respond to emails. 


Associate was much more stressful because you were responsible for the work of the analyst. So even though you're not doing the BS powerpoint formatting and making the CIM/pres look nice, you still have to check each number and review the work. Honestly, worked more as an associate than I did an analyst because I wanted to make sure my work AND the analyst work was perfect

 

Yes, absolutely. typically, the corp dev route would be in the treasury and cash management function, but you certainly have the skills to work on your typical corp dev / M&A junior positions. You see more of this actually from the analyst level going to a junior position at corp dev and work their way up (if you take a look at all high ranking corp dev people, you'll see they started as a junior and worked up vs starting in IB and lateralling over). You don't really see much transition from associate because quite frankly, the salary and $$ drop from IB to the client side is so severe and there actually is a negative bias against IB-ers going to the client side. However, the work/life balance is something you can not understate. 

 

Out of interest, what technicals can one expect if interviewing specifically for LevFin groups?

 

1) I have been told that some US BBs are basically operating like an "assembly chain" whereby the M&A/IBD teams do all the work (Business Plan creation + biggest contributors to Credit Memo), and LevFin tends to focus on the origination/grid/structuring and syndication. As a result, you may not develop a strong "fundamental" skill set in the LevFin role. Is this true? Would then being part of IBD better than working in the LevFin team itself?

2) Along the same lines.. Some other banks seem to, similarly, have the LevFin team doing the origination/grid/syndication, and have a separate team that "supports" origination and focuses on execution/credit approval (processing DD materials and drafting the memo, looking at the CF modelling). Then, the first team is FO. The second team on the other hand is not really FO, is it? It seems to do the "heavy lifting" and you'd get more of a fundamental skills set. Would it be perceived badly if you're not part of the FO team, for PE/DL exits? 

3) More confusingly, sometimes Portfolio is part of those teams, sometimes it's separate. When separate, that is not considered FO right? And that's where people go AFTER LevFin, and not really if they want to go TO LevFin. Could you confirm this? 

Could you share your thoughts on which experience would be best and confirm (or not) the different ways LevFin is organised at different banks?

Thanks a lot for doing the Q&A!

 

1) Part true, part false. The M&A/IBD team will have a lot of say into the business plan creation and contribution to credit memo’s because they have the deepest depth in industry experience. It would be tough for a levfin banker to really understand the drivers behind an acquisition better than the actual coverage banker, as the levfin banker can be spread out amongst a lot of adjacent industries and not just say specifically biopharma in healthcare or med tech in healthcare (healthcare has a ton of sub-industries). At times where M&A is too bogged down s well as the IBD team, the levfin team will have to churn out the pro forma modeling and the debt paydown structure so that it gets approved within the bank (for any sort of M&A, the deal is 99% going to need to be underwritten). As such, the levfin team will need to approve that the bank’s balance sheet can be used for the transaction. From a fundamental skillset perspective, levfin misses out a lot on the equity side of things and industry knowledge because we’re the executioners and transaction folks. However, we also need to be able to tell our sales & trading desk the biggest reasons for this acquisition and respond to investor questions, and in instances where we don’t know the top answers, will pull in the industry junior team (Vp/Assoc/analst)Part true, part false. The M&A/IBD team will have a lot of say into the business plan creation and contribution to credit memo’s because they have the deepest depth in industry experience. It would be tough for a levfin banker to really understand the drivers behind an acquisition better than the actual coverage banker, as the levfin banker can be spread out amongst a lot of adjacent industries and not just say specifically biopharma in healthcare or med tech in healthcare (healthcare has a ton of sub-industries). At times where M&A is too bogged down s well as the IBD team, the levfin team will have to churn out the pro forma modeling and the debt paydown structure so that it gets approved within the bank (for any sort of M&A, the deal is 99% going to need to be underwritten). As such, the levfin team will need to approve that the bank’s balance sheet can be used for the transaction. From a fundamental skillset perspective, levfin misses out a lot on the equity side of things and industry knowledge because we’re the executioners and transaction folks. However, we also need to be able to tell our sales & trading desk the biggest reasons for this acquisition and respond to investor questions, and in instances where we don’t know the top answers, will pull in the industry junior team (Vp/Assoc/analyst)

2) 

The separate team that focuses on credit approval is the Credit team, separate from LevFin but certainly partners. Levfin is juch more involved in origination, syndication, and the main differentiaor, execution (creating CIM/LP/Investor Deck/Roadshow/investor calls/due diligence meetings). Levfin team also has their own modelling for balance sheet approval as does the credit team (so two separate models as credit looks at severe downside cases). Yes, LevFin is absolutely front office. Credit teams also get some client interaction as well (more on the legal side and quarterly reviews)

I woouldn’t say being on the credit team is a negative thing for PE exits, as you’re getting good exposure into modelling and understanding risk factors, but you just don’t get the execution experience of being in market.

3) I’m not sure what the question is asking, but hopefully the above answers helped out 

I can’t really say how drastically different it is at other shops – some shops might be more market focused (true debt capital markets) but overall they’re generally the same. You will need to have a pulse on the market and know how to structure debt (leverage ratios / debt capacity / Cash Flow Modelling / general banking acumen) and how debt gets priced. Some banks might be more Sponsors focused (like MS/Goldman/CS) because they don't use their balance sheet as much as banks like BAML/JPM/WF do, but everyone goes through the acquisition process and it doesn't differe much from bank to bank. 

 

Sure thing, those that lateralled as a junior usually came in from credit or structured finance (due to the credit risks/reward background). The biggest factor in getting accepted was fit and culture after that.

We only had lateral hires from industry groups however. Not sure if that was just an anomaly, but people from Industrials or healthcare latteralled into levfin as an associate (and not from credit/structured finance)

 

Do Sponsors bankers make more than LevFin bankers? Does it make a difference if the Sponsors Group runs the modeling or not?

 

Sponsors are technically an industry group, so not apples to apples. There are times when indsutry groups make more than DCM/Lev Fin, as well as vice versa. Think of it like this, none of the sponsor deals will ever be as big as the strategic corporate deals purely due to M&A synergies created. Therefore, there could be instances where a strategic acquisition from corporate client generates far greater fees than just your normal PE backed acq. 

Does not make a different if sponsors is running the model, it's all work capacity amongst the juniors that dictates that kind of work.

 

This is stupid, but what does a levfin banker do at an analyst level and in general what it is. How is it different from DCM

 

not a dumb question, life and levfin website does a good job explaining what it is for a S&T intern.

Differences vary by bank, but main difference is market monitoring vs client coverage. DCM will act as the go-to person for market movements and rates, so job is much more focused on knowing how the marketing is moving everyday and what deals are being priced. Levfin on the other hand is more technical and client driven - analyzing capital structures, comparable companies and transactions, modeling out debt and free cash flow paydowns, working on legal work and credit teams. 

 

Looking to exit to PE and something non-credit and just wondering how would working in a group like LevFin be compared to the likes of M&A when looking at exits? 

 

When compared to looking at exits, M&A will take the cake all day when compared to Lev Fin. That's not to say you can't get to the top shops if starting off at  Lev Fin, it's just not your everyday role requirement to constantly be looking at full fledged merger models and acc/dil valuation analysis. However, you do get the diligence and underwriting experience and how the capital markets work (which m&A does not at all) which is really helpful in understanding the execution part of PE and M&A

 

Hi, could you provide some info on what Syndicate is doing in LevFin? I'm trying to get a better understanding of their role...thank you!!

 

Yes, syndicate is the one creating and managing the book of orders. There's a lot that goes into syndicate as the lead left bank (the one leading the deal) has to be cognizant of demand and supply. They also have to think about the relationships they make with the investors. If you cut back an investor's allocation to a deal too much, they'll be pissed. But if you also max them out, then they know something is wrong and might question the deal itself. 

 

Thanks for the Q&A! I was curious about you thoughts on a long term career in DCM instead of Lev Fin due to better WLB. Did you  think about making that switch? At most BB's base salary is the same for DCM but bonus might be a slight haircut to tradtional M&A/coverage groups. I've heard hours are 7/8am to 7/8pm M-F. Did you see them work similar hours to the above given your close connection?

 
cbdbanker

Thanks for the Q&A! I was curious about you thoughts on a long term career in DCM instead of Lev Fin due to better WLB. Did you  think about making that switch? At most BB's base salary is the same for DCM but bonus might be a slight haircut to tradtional M&A/coverage groups. I've heard hours are 7/8am to 7/8pm M-F. Did you see them work similar hours to the above given your close connection?

Yea, definitely thought about the long term aspect of it. So within DCM, you are way more market focused and don't really have 'clients'. You interact mostly internally and are the voice of the market to clients when you do speak with them. However, within Lev Fin, you are much more sales focused and tasked with nurturing client relationships.

Think of Lev Fin being the face of Bank of America to a company, say Apple. Then once Apple wants to make a deal, the Lev Fin banker pulls in the DCM counterpart for tech and either has that DCM counterpart part of calls or the Lev Fin banker will relay the information on to Apple.

DCM is more market focused so your hours are definitely accurate. For Lev Fin, you could get in around 8/9am and then could be staying until midnight or later. Don't get me wrong, super junior DCM analysts will be there through the night as well since they're responsible for updating all market-related books

 

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