Q&A: Credit Analyst at +$5B Distressed Shop

Have lurked on WSO on-and-off since pre-crisis days. Reading the material on here helped me get my first internship - time to give back. Happy to answer anything and everything. Quick background below. - Beginning third year as investment analyst at a $5B event-driven / distressed debt fund - Invest in global credit situations throughout the cycle (performing, defaulted, liq claims) across the cap structure (bank debt, HY bonds, busted converts, credit-themed equities) in all geographies (US, Europe, Asia, LatAm, etc) - Spent one year at elite boutique covering an industry - Ivy League undergrad with Econ degree Fire away.

 
Best Response
HFer_wannabe:

1. How'd you get your current gig? Headhunter or personally reaching out?
2. Did you make a pitch for your interviews and/or were you given a case study? If a case study, what did it entail?
3. Were you aiming for a distressed shop or just any strategy in general?
4. Anything you wish you would've studied up on/practiced/read before you got into your current role?

Thanks!

  1. Neither. I was considering an offer from another fund when I was opportunistically referred by a friend to my current fund. Went through a very expedited interview process (less than 2 weeks from 1st round to offer).
  2. Case study. Entailed 3 page memo with model output and other key items of the thesis.
  3. Only aiming for distressed / special situation type shops. All due respect, the last thing I wanted was to find a gig where I covered one or two industries and made investment decisions every quarter based on how EPS compared to quarterly estimates. I have close friends who work at L/S equity shops and their work just doesn't appeal to me. I also didn't want to be the millionth guy covering HLF. Event-driven / special situations was much more my flavor (distressed being a sub-category of those two strategies). I scour the world for "value with a catalyst" type of situations, get smart on the space and the value trigger, and deploy capital opportunistically.
  4. Everyone on WSO touts the importance of fundamentals. While fundamentals are definitely type of mind for us in distressed, we also have to think about market technicals, politics, legal issues, and other issues you can't model.
 
HedgeKing:

What kind of modelling works do you do at your fund? What do you think are the most valuable skill sets you have developed at your current position? How do you think these skill sets will help you in your future endeaver? What's your future plan, both long term and short term?

  1. Typical fully integrated three statement modeling, though we are obviously more interested in cash flow. Also like to model on a unit economics basis (i.e. for shipping cos, what is the progression of charter rates and how do I see the various components of my vessel opex change over time? is the vessel owner better off managing in-house or hiring a third-party manager. If so what's the impact on my cash margin?). Unit economics are crucial. In distressed, we also have to model the BK waterfall to get to recoveries from various return streams (i.e. cash, new debt, post-reorg equity, warrants). How does providing a backstop facility impact our returns? What if the company is liquidated versus reorganized? We model like equity guys with one additional layer of complexity.
  2. Most valuable skillset is my overall ability to analyze situations through my understanding of the company's financials, industry, legal issues, etc. My boss once told me that we're supposed to become Navy Seals - we do all the required training and have all the required skills, and if you put us into any situation in any corner of the world, we'll understand it better than anyone else and probability of success is high.
  3. I think these skillsets are critical to becoming a PM, which is my goal in the medium-term.
 
brandon st randy:

Why is value overrated?

OK now for my serious questions. At this point in the credit cycle do you think there are still good NPL opportunities left in the U.S or have you shifted to mostly performing stuffs like many others have? What do you think are the best places to look for yield in the U.S credit space? Which countries and asset classes do you think offer the best yields right now?

Many Thanks for doing this BTW.

Hate making sweeping generalizations but I see no value in the US credit markets right now. I'm spending most of my time in international situations. My favorite trades right now are 1) long bank debt of a global shipping company, 2) short HY bonds in some sectors in LatAm and 3) long busted converts in a quasi-merger arb situation in the UK. I think there is attractive value in shipping, given you can buy assets at historically low valuations at the bottom of a cyclical industry. I'd caveat that by saying you have to know where to look - if you're piggybacking off the Oaktrees and Davidson Kempners of the world and participating in HSH or Danskebank auctions for NPL portfolios you're looking at very low IRRs. However, if you're looking at more off-the-run situations with smaller cap structures, you can find some attractive opportunities in shipping.

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