Incoming L/S Credit HF Analyst - Need Advice

1. Just go in with an open mind and follow your PM / senior analysts. You will learn as you get more experience on the job. Books can only get you so far.. but read some of the usual suspects if you haven’t already, some credit docs/cov primers, etc. Once you start, you can sign up or ask sales/your senior analyst to add you to some relevant DLs that are sent around every morning with topical names/sectors in focus for credit desks. Build a network, talk to traders or sales guys every now and then.

2. Again, will develop with more experience but focus on what matters, what’s at the root of the issue that prompted you to look at it? Lots of people including experienced guys waste time on stuff that doesn’t matter… you will find out soon too once you start listening in on calls.

Develop a thesis on the business first and let that help you find a trade in the cap stack, not the other way around.

Liquidity issue, if so why? Is it declining earnings (is the biz in decline, is it misunderstood, is it cyclical, etc.), if not, is it some cap structure issue/maturity wall? Good co bad balance sheet? In that case, is this business relevant enough to exist / turnaround? Why and would I or other creditors lend to it (and at what terms)? What’s covenant flexibility to address issues? Can they issue more debt? Secured or unsecured? If not, can they sell assets? Can they move assets to an unsub without consent/any restrictions? How much of an haircut do I/other creditors might take in a worst case scenario? How does the recapitalized cap stack look for the business? And so on

Obviously all those questions are less relevant for non distressed/stressed names. Eg. If it’s an M&A, does the deal make sense, will it go through/what’s my risk, are bonds pricing in any probability and is there a probability for a CoC or how much do I simply make if spreads tighten, etc. I don’t really care much about other stuff here

If it’s a performing new issue, it could just be as simple as a 20 minute or less exercise on am I comfortable with the business’s ability to generate enough cash, what’s margins/cash flow yields/ltv etc. is it coming at an attractive yield, etc.

My point is, what to focus on varies a lot and over time you will learn to ignore the noise and focus on key stuff. Don’t stress about it too much now. Underwriting a new business is pretty much the same process of understanding the business 101, unit economics, operating and cash flow drivers, etc. anyways otherwise

3. Varies as you can see from diff situations above.. if your fund is involved in stressed/distressed names, you might talk to legal/FA. You could talk to traders/desks on names you might be working on or a call with IR/mgmt. Or simply spend time on research/modeling/talking to your PM about stuff you have been working on. Always a combination of those things.

4. From my experience I’ve seen select few funds do full 3 statement models, most focus on operating model + key items on BS for CF, a couple of the “well known” funds mentioned on this site simply not model and use sell side projections and tweak them.