How to gain credit experience as an undergrad?
Title^ - im specifically talking about during school internships not for summer.
But, would love to learn how anyone is gaining public or private credit experience as an undergrad. Feel like everyone is doing search funds or equities stuff. Are there smaller credit funds that I could reach out to? My end goal is to end in public credit. Have a IB internship coming up. Any advice would be appreciated.
I work in a CIB group that focuses on traditional lending/underwriting. To answer how to get more experience / how to frame your learning maybe the following can help outside of raw experience. In terms of models, we do the normal FCF models. Run base case / sens case and see coverages and interpret credit metrics (DSCR, leverage, FCCR, etc etc). Fairly straight forward, we use the same “template”.
In terms of getting better at credit id highly recommend “financial analysis” type courses where the application is looking at financials all the time. Beginning to understand what main drivers of certain businesses are, what margins should look like, what is normal leverage. Example, in the Utilities space it’s normal to see 5x - 6x leverage, but in E&P you don’t want to see over 3x + want a clean balance sheet due to commodity sensitivity.
These are things you learn on the job, but getting better at just being able to analyze information quickly and know the levers that impacts statements helps.
The comment above is fantastic. In addition, to actually identifying opportunities, I'd start with a LinkedIn search, whilst setting geographies. Draft a list of 50 shops where you think an experience in could be useful. Draft professional messages reaching out to them, being clear in your intention. If you want some decent cold email examples, here are a few.
If you know how to code, you could automate this, although I would be careful not to get your LinkedIn account banned + automating stuff will let badly written cold messages go through. If you're really ballsy - I'd suggest picking up the phone and calling :)
I'll be the crusty old guy that tells the young whippersnapper that at this point, you (probably) don't know what you want. This is not a bad thing - I say this so that you don't exclude other things which may yet be a better fit for your passions/opinions/interests. If you already had credit experience and had said "I love credit and here's why... need advice how to end up here full time" that's one thing. But you're just starting out, so for your own sake; keep open mind and positive attitude until you do know what you want and why. Be able to explain why you want credit more than other fields whenever you start networking.
That said; the first comment above is pretty much right. Credit analysis always comes down to the "fundamentals" and they are not particularly complicated. Five C's of credit are timeless and universal. Certain ratios are inescapable in terms of driving credit risk. Learn those, how they care calculated, and what they are telling you. You can get that from books (The Credit Investors Handbook) and articles.
Where things get complicated is interpreting those ratios and C's of credit and comparing them to other firms because no lending is done in a vacuum. There is always an alternative use of capital and assessing the risk/return of those alternatives drives the investment decision (most basic alternative: just buying Treasuries). The best thing you can learn while still in school to be better at financial analysis is accounting. A good credit analyst is fluent in accounting and how concepts influence the numbers they are using in those key ratios. Ex: go read the details on Enron's revenue recognition or MCI WorldCom's capitalized costs.
Congrats on the internship - that is awesome. This will be very helpful for you.
Would recommend getting involved in some RX / credit competitions for undergrads. I know Houlihan Lokey usually does one, and so does Pari Passu / @restructuring.
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