Debtor vs. Creditor vs. UCC for RX Consulting
Hey all,
Quick question—was reading up on debtor vs. creditor differences in RX and realized that what I was reading was from the perspective of RX bankers, over on the IB forum, not consultants. From what I’ve read, debtor-side RX is more technical in IB, while creditor-side is more technical in rx consulting—is that accurate? If so, why the difference & what are the differences in day-to-day work? What's UCC?
Also, are there RX consulting firms that focus more on creditor-side work vs. debtor-side? This is a guess, but is debtor side engagements more common because it's the company that frequently starts the restructuring process, but creditor side engagements tend to be bigger / more high profile?
Lastly, which side is considered "harder" or offers better exits (if y'all say RX IB is an exit, would love to know why there's basically no former RX consultants at RX IB firms, based on LinkedIn) ? Any insights from people who’ve made the jump?
Appreciate any thoughts!
Bump
See below for a breakdown:
Debtor - much more involved role to serve, and tends to focus on operations of the entire company. you are forecasting 13wks, helping build FDM, analyzing contracts, developing key employee retention plans, etc etc. the role is quite broad and their tends to be a lot of ad-hoc analyses. In many ways you live a double life, part financial advisor, part lawyer. There are a lot of things done, that in theory, should be done by a lawyer but ultimately are shared by both consultants and counsel (at least outside of the top 3 firms). One day you could be determining how tariffs are going to impact the budget the next day you could be helping to negotiate a DIP. In many ways the role can be overlapping with a banker and counsel, barring stuff that requires FINRA licensing or a JD. Simply speaking, you are driving the company, and their strategy, through the course of BK.
Creditor - you are correct,much more technical side of RX consulting. Ultimately, at a very simple level you are protecting a creditors rights (usually secured debt, at least from what I have experienced). There is an operational focus, granted, you aren’t driving the forecasts but you are analyzing these analyses and ensuring the Company will not breach covenants / have sufficient liquidity. I can’t speak to this in great detail as I have very little experience on this side, but it can certainly be a very interesting and technical role with lots of credit analysis ( if you are into that sort of thing).
UCC - This is the least fun / impactful work IMO. You are serving a much less sophisticated class of creditors and are doing very basic analyses to ensure these creditors (usually vendors) are protected. Ultimately, you aren’t driving much, and from the perspective of Debtor professionals, are a thorn in their side. The work tends to be incredibly repetitive and is not super fulfilling. However, they can get interesting, especially when the company made bad decisions / committed fraud as their can be taps of value (d&o claims, unwinding a transaction, etc.) that help these claimants recover some value. When there are some questionable practices / decisions the company has made,your role can turn into an investigatory position, serving discovery notices and objecting to things in court to try and preserve value. As interesting as this can be, the likelihood an investigation leads to anything tangible is rare. And ultimately, most of what you do is basic stuff / pestering the Debtors for a variance report of the budget that you will never understand as well as the people that made that budget.
Certain firms do focus on these different niches. For instance, A&M mostly does Debtor side work, While someone like FTI or Province does a lot of UCC work, and BRG does a healthy mix of Debtor and sophisticated creditor work.
My 2 cents: Debtor work is the best type of experience as you are driving the company through bankruptcy and ultimately trying to save it. This is an incredibly marketable skill, despite this field being so niche. There are days I’ve come to the office and left thinking, “I never thought I would be doing what I did today”. It’s an incredibly dynamic role and the unique things you get to do, leave me absolutely loving this field.
I have no will to re read and correct my grammar, so excuse the word vomitting here, PM if you have any questions.
Wait I always heard that FTI had basically a lion's share of the creditor side engagements, as well as having a big share of UCC as well...are you saying that they don't do much creditor?
Also adding on but I've had people both creditor and debtor side swear that their work was the most fun, so it ultimately is up to what you want to do, OP. Wouldn't stress too much over it because people jump between the two pretty frequently.
You are correct, they do a healthy mix of UCC and creditor work. I think many people will debate over debtor vs creditor work being interesting. Which is fair, both sides are interesting, but I’ve never EVER heard someone say they love UCC work
To add to this the UCC stands for UnsecuredCreditors Committee. As I mentioned these tend to be vendors / service providers that provided goods or services in the pre petition period (these parties represent unsecured debt). Usually, these groups are much less sophisticated and don’t have the resources a bank lender might have. For this reason, the US Trustee, which I view as a planner / overseer of the court processes, is responsible for creating the unsecured creditors committee, to round up all these creditors into one party so they can be represented. Ultimately, there is a questionnaire that creditors file and the UST helps form f the committee. Because of the size, and limited financial backing of these parties, they are funded by the Debtors estate and don’t pay a dime for representation. Advisors can pitch to serve the UCC when formed and often time well prior to formation, firms are reaching out to creditors and trying to get them on their side so that once they form, they will push the UCC to hire a specific advisor.
Do you have any insights on exits? I know that RX consulting exits are all over the place, esp when it comes to cross cap moves right now, not sure if that's due to the market or some other factor
There are instances where for smaller deals, the Rx consultant will be hired both as an FA (run the 13wk, negotiate with vendors, all the stuff that’s already been mentioned), as well as the IB (cap raise or sale). The FA firms definitely don’t lead with their IB capabilities when they go to market, but rather can tack it on as an added service for smaller situations. The reality is that you won’t literally be doing both on the same case, they’ll be a team for each. The team doing the IB will be FINRA registered. Also, would add many of the FA firms (including Big 3) actually have relatively big straight IB businesses in Europe. If they want to run a sale or fundraising process that includes US parties, they might involve their FINRA registered colleagues in the US, which is another way to get experience. But in bigger US Rx situations, you’re going to bring in the big guns for IB.
Don't the consultants build most of the initial models (DCF, liquidity analyses, waterfalls etc) and pass them on to the bankers, who then refine them and go to market with them, especially during creditor side engagements?
Also quick caveat to the above, running the 13wk, negotiating with vendors etc is heavily debtor side engagement stuff, for creditor side it's predominantly business plan assessments, valuation analyses, recovery modeling, liquidity analyses, diligence on collateral, alt scenario creation etc, basically being the financial eyes and ears of the creditor committees.
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