Credit fund interview
Any good list of common credit (l/s or distressed) fund interview questions would be greatly appreciated.
Thanks!
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Will depend a lot on the fund, but: What is the fulcrum security and how do you determine it? What are some ways to short credit? What do you think about the current interest rate environment/what is your focus (know LIBOR and TED, etc) What are your best investment ideas? What do you know about the bankruptcy process? How would you evaluate the collateral for a given company? Know how to calculate various leverage ratios and FCF-to-debt figures
These are fairly basic/qualitative; you could well be drilled on any number of bond/fixed income math concepts as well.
CREDIT FUND interview (Originally Posted: 09/07/2013)
Hi everyone,
I have an interview with a credit fund coming up early next week. The fund invests solely in LBO debt (senior, subordinated and distressed situations). I have a LevFin background, so think I am OK with the basics.
But is anyone familiar with the sort of questions I will be asked? Any tips on what to study til then?
All insights much appreciated
Many thanks!
Also, I am dreading the question: "Why a credit fund? Why not PE?" - if anyone could provide some positive things to say about a career in a credit fund, that would be great. Thanks
You find restructurings interesting / fun. More liquid. Deal flow. But also remember that people who work at credit funds most likely will be easily swayed by any reasonable response as it'll correlate to their view. You'll be fine.
Thanks Oreos, appreciate the encouragement!
Credit fund interview help (Originally Posted: 02/15/2013)
Hey guys,
I have an interview coming up with a credit fund. Mostly invest in Mezz debt to fund LBO's but also some convertible bonds, AAA corporate and CLO's.
I have solid finance/accounting knowledge and I love investing/markets but credit stuff is new to me as its a bit more niche and harder to find info on.
I know how to price a bond, yield curve theories, duration and convexity but what else would I need to know?
There is also a case study where I need to review a credit paper and answer questions on it. I have never even seen a credit paper so if anybody can help me out it would be great.
Any info is greatly appreciated as I want to be as prepared as possible.
Thanks guys.
Leverage loans and HY bonds are not really impacted by interest rate sensitivity (duration) due to 1) loans tend to have floating interest linked to LIBOR, ie LIBOR + 500bps and 2) HY bonds tend to have shorter tennors.
Also, with loans and mezz there is no liquid secondary market so if you buy its usually buying to hold to maturity so you are more concerned with fundamental credit risk and the IRR you can get. Obviously with bonds there is a secondary market so there is also a focus on price. For example you might buy a bond trading at 80 if you think a change in the company's fortunes will see the price move back towards par (100).
Case study will most likely be them giving you an indenture or OM and asking you to formulate an opinion on the credit. Just model out the financials until the debt is due to be refinanced, look at the leverage and coverage ratios and EBITDA margins. Try to think about the business profile, what could go worng, credit is negative in focus and you want to avoid a default. Also, you should estimate a post default/recovery value for the debt so you have an idea of your risk/reward trade off.
Best of luck.
Great response Ovechkin.
So are you saying for high yield debt the main focus is avoiding default rather taking advantage of price fluctuations (as no liquid secondary market)?
Anybody else have any input?
I'd also be interested in input, in particular investments in private debt
Had an interview for something relatively similar (debt HF) and the case was essentially assessing whether or not you should provide mezz. financing to a firm (assess FCF/ability to pay, what interest rate you should charge them, etc). Not sure if this will be similar to your case, but whatever the case is, it'll probably be the bulk of the interview.
so how do you decide what interest rate to charge them?
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