Credit Research Questions
Hi all - thanks in advance for reading this. I have recently grown an interest in pivoting into a credit research role. I come from a sell-side & buy-side M&A background so I'm trying to assess the feasibility of making this transition.
As I look further into making this move, I was hoping to get the below questions answered:
1. Can someone please elaborate on the financial modeling that is done? I'm very comfortable when it comes to what I'll call traditional M&A modeling and valuation (3 statements, DCF, comps/precedents, IRR calcs), but I struggle to understand the type of modeling a credit research analyst does? If you could also touch on how this differs between asset classes (for example, Corp Bonds vs. Munis) that would be great.
2. What are the standard hours here? Coming from a deal environment, where things are constantly popping up and there are always deal sprints, will it be similar in a credit research role?
3. Are there certain asset classes you suggest staying away from that may pigeonhole me?
4. Best materials or ways to prep now for interviews? Materials on modeling or general industry information pieces you recommend reading? I would imagine I will likely have a case study where I'm given some information and then I have to pitch the investment as a go or no-go. So, anything you can share would be helpful.
Based on the most helpful WSO content, here are insights to your questions about transitioning into a credit research role:
Financial Modeling in Credit Research:
Credit research analysts focus on models that assess creditworthiness and debt repayment capacity. While your M&A modeling skills (3-statement models, DCF, etc.) are relevant, credit research emphasizes:
Standard Hours:
Credit research roles generally offer more predictable hours compared to M&A. While there may be deadlines for publishing reports or reacting to market events, the pace is less intense than deal sprints. However, during earnings seasons or major credit events, hours can spike.
Asset Classes to Avoid:
Avoid overly niche asset classes that might limit your exit opportunities. For example:
Best Prep Materials:
Good luck with your transition! If you need more specific resources, feel free to ask.
Sources: Credit Analyst Q&A, Corporate Banking - Credit Analysis Skills, Credit Rating Agency vs Credit Risk at a BB, Credit / Bond Tranches Questions, Seeking advice on Corporate Banking modeling
Hi -- Happy to be helpful. Just out of curiosity, why not aim for a credit buyside gig?
Appreciate the response! When you say buy-side credit gig, are you referring to private credit? Honestly, I’m trying to get out of a live deal environment and move to something that has more predictable hours, which is the reason I’m considering a move here.
Would appreciate any thoughts on the questions in my post!
FYI buyside shops also have credit research teams. I’m in private credit at a large asset manager, and we have a pretty large credit research team. Also, on the deal side, if predictability and WLB is importantly, insurance -backed asset management arms tend to be much more chill. Or, aim for investment grade roles, IG related work tends to be more WLB friendly because less complexity.
For the most part, it will still be deal oriented, because you need to react when a new issuance comes to market, repricing/amendment, LME, etc. But otherwise you will be most busy around the time earnings come out for your issuers with the rest of the time being more predictable. Hours are broadly significantly better in credit research roles than true deal environments tho.
thanks for the reply! do you have any insight into the other questions from above?
Modelling wise you’ll really only be building 3 statement models and then building out the BS with all the leverage numbers, nothing crazy literally super high level and then you stress test those models seeing where it breaks. I’d say focus more on understanding the legal side of credit which is very important.
Hours differ depending on where you are I for instance work 60 ish hours a week but I’ve seen shops where people work under 40 hours (typically insurance AM’s).
If you don’t want to be pigeonholed stay away from IG that’s about it super boring. Focus on HY or LL’s both pay very well and are significantly more interesting than vanilla IG. Usually you’re a generalist when you start out and start to specialise in an industry the more senior you get.
In regards to preparation I’d get comfortable with bond math and learn how to assess relative value. Maybe also read Moyers which is a good book for distressed debt but applicable across the credit spectrum and S&P leveraged loans primer. Perhaps also learn some of technical drivers of the market (supply/demand, macro drivers etc) as opposed to purely fundamental. When looking at credits remember you always want a stable business with predictable, recurring cash flows, and you also want to look at pricing i.e. are you being compensated for the risk you’re taking?
How about covering IG and HY- would that be pigeonholing myself?
Thanks - super helpful. Few follow ups:
1. Modeling - how would a 3 statement model allow you to make a decision on whether to buy the credit you are analyzing? Wouldn’t there need to be some valuation/pricing/return analysis or is my understanding wrong?
2. Case study - i’m going to start prepping for this. I think i’ll likely be given a potential credit to analyze and then i have decide t whether or not to buy. What type of information would be given and how would you approach this? What type of model would you build? Any specific to ensure I include in the actual pitch?
3. The role i’m looking at is exclusively focused on Munis - does any of your response change based on that? They focus mainly on below IG and non-rated credits.
4. Hours - for minis specifically, how would earnings season impact hours? I would think it wouldn’t really be applicable with munis bc none of those issuers are reporting financials, right? Would hours only spike when a new issuance is announced?
1. Where I’m at we don’t really look at valuation of the company overall, it’s just not really applicable aside from computing LTV. I work in the LL space so we just assume an 8-10x multiple and use that to compute LTV. But I’ve never had to put together a DCF. The way that we use 3 statement models is really for stress testing. As an example I’m working on a credit in the construction industry with 30% of revenues coming from the Germany market. We’re worried that the Germany construction market will recover much later than counterparts in Western/Eastern Europe. So in my model I’ll break down revenue on a country level and forecast each country out individually assuming that Germany doesn’t recover until FY26. I’ll then see how that flows through to the bottom line and then how that affects leverage going forward. That gives us an indication of whether the company can reprice when the bonds/loan mature and if the price justifies the risk we’re taking. In regards to pricing/returns where I’m at we don’t really do this (maybe different at other places) we just focus on analysing the fundamentals and assessing pricing i.e. is this bond trading wider than other credits with similar fundamentals. Based on that we make a call on if we see the credit rallying to par for instance. Again I work in the leveraged loans space with some HY so this may be different to what you’re doing.
2. I’m hesitant to give advice since I never had to do a case study since I joined as an intern and converted to FT so honestly I’m not sure what to tell you. I can give an overview of our process where we generally build a 3 statement model and key credit stats net/gross leverage, senior leverage, ICR, Fixed charge coverage etc. Then in our IC memo it’s the typical business/transaction description, cap structure analysis, strengths/weaknesses etc.
3. I’ve never looked at munis before but my understanding is that most credits you’ll look at will be focused on infra/public services? In general I’d say it’s harder to move around from a municipal bond seat but I can’t really say for certain.
4. Not completely sure like you said they don’t report quarterly so hours will be more chill and very predictable. You’ll probably be working on refi’s most of the time and I’m also unsure about timelines in regards to new issuance with muni’s so hard to say.
Sorry for being somewhat vague not too knowledgeable about the municipal side of things but hope I helped.
Seconding what others have said about insurance companies having great WLB, they tend to have much better hours than equivalent roles when you're working directly on equivalent buyside funds. Even their private credit arms tend to have very consistent hours without the crazy deal sprints you would typically find in private markets.
If your primary focus is culture and WLB, I would also take a look at the major credit rating agencies – they don't get discussed much on WSO because it's primarily students who look down on anything that isn't IB/PE, but honestly speaking they're amazing places to work in terms of WLB and have great cultures, and you also learn a ton working there + they have great learning and development resources. And if you happen to end up working for one of the Big 3 CRAs it looks great on your resume as well. Downside is that the pay tends to be on the lower end relative to what you would expect for similar roles, but if you consider a it on an hourly basis it's actually quite good, since you'll almost never go over 40-50 hours per week.
Not sure most would agree that credit rating agencies “look great” on a resume
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