Credit Fund Modeling Test / Case Study
Hi, I'm expecting a case study for one of my credit fund interview processes. I don't have much of a background in credit. Could anyone provide an explanation of how one may look at whether a certain tranche of credit is a good investment? Perhaps provide a model or discuss the theory?
I would assume it would make sense to model a base and downside case since upside doesn't really matter. Would it be a standard lbo model down to FCF and then a debt waterfall? Are there any ratios or key metrics one would look at when analyzing a particular tranche?
Any help would be appreciated. Thanks in advance!
Primary or secondary debt?
Yield, valuation and cash conversion.
second the above, I think basic things that'd be good to know are leverage (net debt to ebitda), equity cushion, trough ebitda, cash conversion (as mentionned above so whats your view on maintenance capex, working capital, ebitda, cash interest cash taxes etc going fwd), liquidity, upcomming debt maturities, covenants / seniority of diff tranches. to compare tranches you need to think among other things about seniority / recovery etc and what yield you get compared to the risk (spread per turn is one helpful metric for that)
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