What type of technical questions will be asked in a leveraged loan portfolio analyst role?
I have an interview scheduled on short notice. And it’s with a large asset manager in their fixed income group. Specifically, I will be evaluating leveraged loan investments.
What should I do to prepare?
I saw that the role will involve fundamental credit modeling. What does this entail? Is this simply a three statement financial model?
Based on the most helpful WSO content, preparing for an interview for a leveraged loan portfolio analyst role, especially within a large asset manager's fixed income group, involves understanding several key areas. Here's how you can prepare, focusing on the technical aspects and the fundamental credit modeling you mentioned:
Understand Leveraged Loans: Start with a solid understanding of what leveraged loans are, including their characteristics and why they are attractive to investors. Leveraged loans are typically extended to companies with higher levels of debt and are secured, offering higher yields but with increased risk.
Credit Analysis Fundamentals: Be prepared to discuss how you evaluate credit risk. This includes analyzing the borrower's ability to service debt, understanding cash flow stability, industry risks, and the overall economic environment. Familiarize yourself with credit metrics such as Debt/EBITDA, interest coverage ratios, and leverage ratios.
Financial Modeling: Fundamental credit modeling often involves building or analyzing financial models to assess a company's performance and predict its future ability to repay debt. This isn't limited to a simple three-statement model (income statement, balance sheet, cash flow statement). You should also be comfortable with:
Industry and Company-Specific Risks: Be ready to discuss how you would evaluate both industry-wide risks and company-specific risks. This could involve understanding the competitive landscape, regulatory impacts, and any operational risks specific to the company or its industry.
Comparative Analysis: Know how to compare a potential investment against its comps (comparable companies or deals) to evaluate its attractiveness and risk profile relative to the market.
Documentation and Structuring: While more relevant for those directly involved in issuing or structuring leveraged loans, having a basic understanding of the documentation and how these loans are structured (covenants, terms, etc.) can be beneficial.
To prepare, review the fundamentals of credit analysis and financial modeling. Practice building or analyzing financial models that incorporate the specifics of leveraged loans, such as covenant headroom calculations and scenario analysis. Stay updated on current market trends in the leveraged loan market and be ready to discuss recent deals or market movements.
Remember, demonstrating a keen understanding of both the quantitative and qualitative aspects of credit analysis will be crucial in your interview. Good luck!
Sources: Leveraged Finance – 2017 Update, Credit Analyst Q&A, Credit Analyst Q&A, L/S Credit HF Analyst - Q&A, Credit Modeling
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