What are the different types of Credit?
Posting this here in attempt to get this thread going for younger monkeys who may be curious about credit.
What are the main differences between Private and Public Credit investing?
What are typical pathways to a career in credit?
Comp compared to M&A, S&T, Corp Dev?
I think if someone posted a generalized outline of the different veins and arteries in the credit world, without being too exhaustive, a lot of younger users would be appreciative.
Would be great for some more tenured monkeys to jump in on this and get the forum rolling! Thanks WSO for creating this forum!
So much to consider in terms of the different types of credit. One way to get a simple overview is to think of a 2x2 matrix with an axis going from private credit to public credit and the other axis going from investment grade to distressed.
On the private vs. public side you will have public credit, which will be traded bonds and leveraged loans, and private credit, which will be direct lending. Somewhere in between will be small issue syndicated bonds/loans, and syndicated private credit deals. Public side credit will have deals that are broadly syndicated by an investment bank and that are actively traded. Private credit will have deals where credit firms have a sourcing apparatus that talks directly to financial sponsors and companies.
In terms of credit quality, IG to HY to distressed there is a lot of variation. IG will have extremely loose docs with basically no covenants. Its companies with almost no credit risk and can typically have substantially longer maturities. IG is almost less about credit metrics and underlying valuation analyses than it is trading around rates, spreads and duration. Then there is high yield / leverged loans (basically the same except bonds vs loans). Even within HY there is a massive difference between BBs and CCCs. The closer to IG you go the more the analyses and credit package resembles IG. The further down you go to more low B and CCC its really much more bottoms up fundamental analysis. There will typically be more complex covenant packages as well. Lastly you get to distressed thats underperforming credits that may recover on their own or need some form of restructuring. This is a mix of legal analysis and valuation analysis packaged with a lot of negotiating skill. Both public credit and private credit can fall across these credit quality lines.
In terms of types of firms, there will be large asset managers that are more index huggers where analysts can cover everything from IG to HY across a particular sector. These firms will be extremely diversified. Next up you will have more specialist firms that are actively trying to beat the index with more concentrated albeit diversified portfolios. Then there will be CLO managers that use leverage but still are more index chasing / specialist than not. Lastly you will have hedge fund / credit ops funds that will be much more concentrated and will do everything from long/short to distressed, some with leverage some without.
From a career perspective, its harder to go down in credit quality than up - ie a IG analyst isn't getting hired as a distressed analyst even though both work in credit.
Comp can vary and largely depends on the firms AUM. That said, doing IG/HY/LL is going to be a much less volatile career path that is more like clipping a coupon. You won't have a massive year but the likelihood of getting blown out is very low. Contrast that to hedge fund / credit ops / distressed fund structure and the comp will have much more upside, but will be more volatile in terms of good/bad years and even getting blown up - whether that is being fired or the firm imploding. Comp will be higher than Corpdev and lower than PE/HFs. Probably similar to banking, maybe even less, but way better hours.
People will likely get into credit from a levlfin or restructuring banking background, or going straight into the buy side at a large asset manager as a more junior analyst.
From a work life balance its probably the best there is in finance, or certainly up there. You're not going to have the fire drills and deep dives of banking / PE or the daily volatility of the equity markets. Credit is about doing the work up front and collecting the coupons and monitoring thereafter. Even in liquid credit things are not trading like equities.
If there was a '2xSB' button I'd be smashing it.
As someone in a sell-side IG/HY flow and underwriting (some risk/hedging) role at a regional bank, what might my next steps be to work towards earning an opportunity in a HY/Distressed public environment? I've heard being senior or even head of a sell-side IG/HY trading desk is paradise, and I do believe it can be, but maybe you have your own thoughts on that? Some may say moving down in credit quality is impossible without BB IB/Rx experience - but nothing can stop me from trying. Valuation/modeling courses and CFA (if non accounting/finance undergrad) would be my first thought. Obviously networking and the whole nine yards. Any other ideas would be helpful.
What I will say for those even younger for me, and my experience is very limited but I'll take a shot here, is that ke18sb hit the nail on the head about comp and work life balance regarding IG public credit. If you can get a spot on a bond desk with upwards mobility, it's pretty much IB comp (depending on market/bonuses) with much fewer hours and a quite predictable schedule. Now, there are many caveats here and usually less career and promotion predictability than your typical IB->PE->who knows route, but we can touch on that if there's an inquiry. Also, having friends in IB and talking with them about their work, I tend to think my job is far more interesting on a day-to-day basis. There is obviously biased in that statement though.
Thanks for the high quality response.
If you're on IG/HY sell side, then you can probably make the transition to the HY/LL/CLO space, especially if you are young (even private credit). Distressed more of a long shot. Its probably just a matter is keeping your eye out for job postings, talking to recruiters and getting their email blasts / linkedin blasts, and networking. I guess practicing a pitch would be helpful or having a couple of ideas to talk about but that should be easy since you already work in the space - I personally wouldn't devote too much time to this with out specific opportunities lined up. Some people will blast ideas to people. I personally wouldn't be like wow here is an idea from a rando I'm going to interview/hire them, especially if there isn't an open role (and if there is there will be a process in place anyway). That said, some people have done and I'm sure there has been some success stories.
How would someone go about getting a job like yours? I'm already a few years out of college, and am wondering if it is feasible to make the pivot through an MBA.
I wish "collect the coupon" was just that... days of easy asset management from low rates is over lol. I'm in private credit/direct lending/warehouse-style senior and mezz facilities. Blow the dust off the 'credit risk' sections of Fabozzi - amendments and waivers coming in hot
My initial comment was in regards to career risk, not job function. Clearly in different cycles there are going to be different drivers of work flow and default rates have been at all time lows...thus only one way to go - up. That said for non-anchors, which are most firms and thus most jobs, you're not driving terms/amendments/restructuring. Private credit is a different situation of course as firms are usually the sole lender and the role is going to have a much greater structuring component in any market condition, relative to non-anchors on the public side. Now if you're going bush the dust of any book it should be Moyer. However, larger firms on both private and public side will often have dedicated workout groups.
outstanding response from one of the OGs. This is what WSO should be about
Absolutely. Thankful for the action on this thread so far.
Do you have any insight as to whether or not PF bankers have a good chance of getting into the Private Credit space?
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