Structured Credit Investing – Explain to me like i’m a 5 year-old...
Hi All – I’ll be joining a structured credit investment group as an analyst in a few months that covers traditional securitized ABL’s and ABS products but also other esoteric ‘structured-credit-like’ deals (royalty, leasing, specialty fin). How do I get ready to understand the way these guys think? the lingo? what kind of work would I be doing?
Many thansk!
I’m sure the team you’re joining would be happy to point you towards some resources if you ask. I always recommend as a free and publicly available resource looking at presales and other publications from rating agencies (Kroll and DBRS/Morningstar) you just need an email to sign up. Presales/new issue reports will walk through how a given deal is structured, qualitative risks, and some high-level overview of the cashflow modeling. Finsight is also a great resource for finding issuers and deals to look up.
Hadn’t read your full question and will depend on the exact strategy and type of fund, but I assume much of the work will be analyzing historical asset performance (e.g. prepayments/defaults on consumer originated by the same issuer) to come up with assumptions for modeling out deals (normally in intex for deals where you’re buying bonds in the primary or secondary market) or possibly in intex if your team is looking more at directly originated deals. In that case the modeling would probably be a combination of the underlying asset and then layering in any given deal’s payment waterfall.
thank you so much puvbu! this is very helpful. Are there any resource that help with the modelling? Not really sure what to expect there
I feel like there’s surprisingly little online in terms of modeling resources for how big the market is, but the below link has what seems like a helpful overview for modeling on the asset side (defaults, prepayments etc). Very high-level on the deal modeling side, you’d normally have a waterfall that you run the asset cash flows through that would include servicing fees and interest on your deal/bond. You’d also normally amortize the bond either with all excess cash flows over interest (“turboing”) or you’d keep the bond at a fixed advance rate on the performing balance of the asset and use cash flows to maintain that level and then distribute any excess over that to the residual holder. Sorry that might be a lot and kind of tough to explain without examples but I hope this is somewhat helpful.
also in my last comment the second intex was meant to be excel.
https://www.sifma.org/wp-content/uploads/2017/08/chsf.pdf
Damn Laurier alum are balling out here eh?
After reading some presales, how should I put on the buyside hat to think about it from an investing perspective? I understand most of what I read, but can't really go a step further to look at it and opine on whether I'd invest in it or not. For context, I've been reading about ABS (starting with the prime auto, credit cards, consumer loans, etc.) as I imagine those would be easier than esoteric assets
Hey, assuming you've been in the role for a few months now? Any updates you can share with respect to training material/resources/how to learn? I'm looking to break into structured credit investing and as you're probably aware, there aren't a lot/any online resources
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