General LevFin Discussion
The syndicated loan market is obviously in the shitter and having an existential crisis with the direct lending taking the lead in pretty much all LBO financing for the last 6 months or so.
Curious what the LevFin bankers out here are doing given uncertainty? Pivoting to direct lending? Trying for PE? Distressed? Obviously these are classic exits but tbh it seems insanely competitive to get a job right now given the voluntary exodus from banks coupled with layoffs.
What about restructuring? I wanted to ride out LF for a while but with a dearth of activity and resulting limited comp idk what to do. Open ended. Just wanting to stoke up some discourse
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Now is the time to get into restructuring if you can.. I also don’t think LevFin is dead either. January is always a dead month. However, if you could raise your hand at your workout group right now it would be invaluable experience and make you much more well rounded and more layoff-proof.
Yeah problem is finding a role. Not a ton of opps. Networking a bit but no real traction thus far.
Depends where. Restructuring at funds can be a thankless job depending on the IC. Can be stressful given problem loans can have existential issues. You can learn a bit for sure but be sure to understand firm dynamics.
What level are you at? VP and above? BB currently or a small shop? I think lev fin will die a slow death to directs, but it will take a long time, no need to jump ship yet.
how slow? makes me wonder what the future of levfin will be with direct lenders doing huge private credit deals that normally would be syndicated. https://www.ft.com/content/0d65e8d0-5354-40ed-9cb8-8c3fd1b0a31e
Associate at BB. Be interested in uptiering to a better platform when things stabilize and do more leads as it's more stimulating work than cranking out underwriting memos to sign into a commitment.
Probably will try to make it through this cycle whilst gearing up for recruiting and subsequently pivoting to DL / PC role focused on LMM. The job market is pretty poor out there even in DL / PC as a lot of hiring took place in 2021/2022 alongside fund raises. I would expect that to improve if we get through this cycle but tbd on how long that takes.
On that note - anyone hiring in CT? Sr Associate, work on a mix of right side and left lead roles for LMM and MM buyouts. Our team does both the credit work and the syndication work for anything we take underwriting risk on. Preference is to remain in CT as my entire family is here and I place a lot of value two things: 1) work and 2) family.
In the long run I think we’ll see a convergence between DL and syndicated LL providers. We are somewhat already seeing that with JPM setting aside $10B in capital for DL efforts, and I believe it was either Ares or Antares setting up a syndicated loan team recently. This this is particularly true if DL trends in a direction whereby more & more deals are clubbed up as opposed to having one sole lender. Also will be particularly true as larger DL/PC firms snap up smaller ones / as asset managers set up DL/PC firms with dedicated balance sheets allowing for greater flexibility in their mandate.
There is of course the outside chance that regulatory scrutiny picks up on either the private credit world, or on banks carving out capital for DL/PC. This would obviously have important implications for the industry as a whole, but so far doesn’t seem like regulatory efforts have picked up any steam whatsoever
Not sure how JPM is structuring their DL efforts (i.e., truly on balance sheet or not) but my bank has a DL arm and it's technically off balance sheet so the regulators likely couldn't do much.
Same - and it’s really just to stay relevant in certain relationships IMO.
but long term I just don’t think it’s in banks interest to get heavy here with exposure to levered term debt in these DL vehicles unless they have a legitimate asset management arm to manage it and raise the capital externally. RCF is fine in the BS. The IRR on Locking up long term capital here is mediocre.
We’re in the movin’ bidness, not the storage bidness!
Regulators are typically reactionary and a step slow to do something, usually waiting til shit hits the fan and it’s too late. While the hung deals clogged up the market and generated some losses, it hasn’t posed a risk of a systemic collapse affecting other parts of the banks yet.
direct lenders are going to get pummeled at some point sitting across the table from PE. It’s just a matter of how and when. I get that it’s a different business, and banks get screwed in the market timing aspect of committing then waiting to syndicate.
Agreed - new regulation is typically in response to a crisis. The hung deals were in the syndicated market anyways and haven’t turned into a contagion effect. Need a large pension fund to be turned upside down due to steep losses in the private credit market for anything to change, or something to that effect.
And I agree private credit / direct lenders will take a loss at some point sitting across from PE, especially when the nature of the business model is to take down entire facilities or chunky holds in individual credits. I do think the water is muddied a bit though, given there are private credit arms of PE firms, and there are direct lenders coinvesting alongside PE shops on deals
Agreed. I believe PC/DL will face a reckoning in ~Q4'23 - Q2'24 once the full effect of SOFR being 4.5%+ hits the FCC/IC ratios coupled with what I expect to be a combination of revenue declines/stagnation and/or margin pressure in 2023 (believe small/medium sized businesses will be the ones that start to feel the revenue/margin pressure the most [i.e., the area where PC/DL plays the most]). Think about all those deals originated in 2021 with 5.5x+ leverage on what I would argue was ~peak earnings for a good handful of those companies due to COVID demand related pull-forward, stimulus, easy money stimulating the economy, etc.
That said, I think the recession is more so going to happen in the back half of '23/early '24. The only way I see it being avoided is if the Fed indeed not only cuts, but cuts significantly where SOFR is < 2.50% which would imply 200bps+ of cuts. Don't see them cutting anywhere near that, UNLESS shit is already hitting the fan and it's too late.
A lot of my PortCo's (manage a book of leveraged credits) are talking about material cost cuts in 2023 - maybe not unusual for sponsor-backed Co.'s, but I just can't imagine a scenario where unemployment does not start to tick up (yes, I saw the blow-out jobs report yesterday) and starts to reverberate in the economy. Sure, plenty of "job openings" out there, but can people who are very high earners (e.g., tech worker making $500K+; finance guy making $500K+) really find a comparable job that easy in this type of environment? While these jobs only account for a small fraction of the overall workforce, they undoubtedly punch above their weight when it comes to consumption - who's the one paying the blue collar worker to remodel their home? -- Generally, the higher wage earner.
Shit boys she’s heating up again. Market turning on a dime. Busier than I have been in months in the blink of an eye
exactly why the Fed will be higher for longer and won't cut rates in 2023 - and possibly still raise another 50bps. The stress will start to show in the next ~6mo at highly levered co's (full year of SOFR at 4%+)
Maybe. Opportunistic issuance at this point.
Is this across the industry or did you all win some mandates?
Signed into a handful of commitments in last week and several more actionable items in the hopper that seem much more realistic than the opps we’ve been running down since last summer.
Our desk had been tied up with a bunch of tail chasing and pitching for a while with a few underwrites here and there and leads for existing clients but not enough to feed everyone.
assuming other desks are the same as opportunistic clients and MDs look to smash the window
Thoughts on couple big departures of LF cap markets from CS? Obviously everyone knows story on CS troubles but they still have decent grip on clients. Guessing all their relationships are up for grabs..
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Well boys, syndicated market shit the bed again with only 3 amend & extend transactions in market right now. Really felt like momentum was built in Jan & Feb but obviously the SVB debacle effectively put a halt to the primary (for now). I think things will reopen but Q1 was effectively a bust from a fee perspective and Q2 will be shitty too as it takes time to rebuild momentum.
We are also seeing a slow down in pro rata volume as the risk appetite at usual market participants has pulled back due to loan-to-deposit ratio concerns. Fed & White House also want to levy additional regulation on smaller banks which will negatively pro rata market.
I am sure private credit is dealing with issues to (like underperforming portcos and lower volume), but sure feels like that asset class has more definitively taken the lead since early-mid 2022 (probably a better place to be in this job market lol)
Not a ton on our side. Participating in some UW loan stuff sparingly that will come to market Q3/Q4. Still some refi activity on the horizon albeit nothing material from a volume perspective.
continue to vet lbo’s for different sponsors that fall away to direct market seemingly 10/10 times haha
had several BE bond approvals like the week before SVB and they’ve all been shelved for now
still feel like people want to put money to work but major disconnect across all participants caused by rate vol IMO. Isn’t the MOVE off the charts rn?
Funny you mention the MOVE index - I had to pull together a marketing slide with that as well as the sharp decline in 2 & 10 yr yields…it has indeed been off the charts
We are running leverage reads as well for clients but they never seem to go anywhere. Been no HY activity to fall back on for fees either.
Definitely starting to worry about what they do with headcount at my shop, as well as where this asset class goes long term (even further up market??). I find myself checking open PC and AM roles obsessively for a fall back, which probably isn’t healthy haha
Interesting article linked below from BBG talking about JPM and GS ramping up trading for direct lending secondaries.
The direct lending fund raise cycle and marketing campaign is a bit farcical in my view. Yes, hugely beneficial to issuers in volatile times like the last ~16 months because of the lag between committing / launching / funding. But it’s the exact same asset with different distribution. Smaller list of lenders for borrower but idk if that’s really a plus in a restructuring when those are largely driven by the top lenders anyway.
The lack of trading is a con for holders of the debt. I mean, sure it masks volatility for pensions and other LPs but that’s about it.
my view is similar to the sentiment in the article that LL/HY/DL desks likely converge in time and either the banks or the biggest direct lenders emerge as winners and consolidate it all
https://www.bloomberg.com/news/articles/2023-03-29/jpmorgan-goldman-pla…
I agree the marketing for DL is extreme - at times it feels like LCD is funded by direct lenders with how overwhelming the commentary leans towards lauding private credit.
I don’t really see how banks win the arms race unless industry regulation is loosened - the exact opposite is happening in response to SVB and it’s going to pressure the industry further.
Heads of our IB say privately that they expect the industries to converge as well. They also admit that we are ramping are fund leverage business as a hedge in case the syndicated market never comes back in the same form / scope.
edit: and agreed the illiquidity factor of PC is not a benefit, but that hasn’t stopped asset managers from allocating billions to the asset class…
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