Corporate Banking Lateral - Things to Know/Prepare/Study Before Starting

To prepare for your upcoming role as a Corporate Banking (CB) analyst at a bulge bracket (BB) bank, here’s what you should focus on:

1. Key Areas to Study:

• Credit Analysis Fundamentals:

  • Understand credit ratios like leverage (Debt/EBITDA), interest coverage, and fixed charge coverage. These are critical for assessing a borrower's ability to service and repay debt.
  • Learn how to evaluate business risks, industry trends, and company-specific risks.
  • Familiarize yourself with credit write-ups, as analysts are often responsible for creating these for new deals, annual reviews, or amendments.

• Loan Syndications and Credit Agreements:

  • Study the basics of loan syndications, including pro rata vs. institutional loans, and terms like Term Loan B.
  • If available, review the LSTA (Loan Syndications and Trading Association) handbook for a deeper understanding of syndicated loans.

• Capital Structure and Covenants:

  • Learn how capital structures are analyzed in CB and how covenants are structured and monitored in credit agreements.

• Industry and Sub-Sector Trends:

  • Read Moody’s and S&P credit ratings to understand key considerations in credit decisions and industry-specific risks.

2. Financial Modeling to Focus On:

• Three-Statement Models:

  • CB teams often build three-statement projection models with a focus on debt capacity rather than equity valuation. These models assess repayment capacity and creditworthiness.
  • Practice building models that include tax schedules, deferred tax liabilities (DTL), and other advanced components.

• Debt-Focused Models:

  • Learn to build short-form LBO models and operating models tailored for credit analysis. These are simpler than equity-side models but still require a solid understanding of financial statements.

• DCF Models:

  • While not as common in CB, some teams do use DCF models. It’s worth brushing up on this skill.

3. Resources to Use:

• Breaking Into Wall Street (BIWS):

  • Their Financial Modeling Fundamentals course includes a 40-minute video on credit ratios and financial metrics relevant to CB roles.

• WSO Financial Modeling Templates:

  • Download templates for three-statement models, DCFs, and LBOs to practice.

• Books and Guides:

  • If your school or library has access, review the LSTA handbook for loan syndications.
  • Read up on asset-based and cash flow lending.

4. Practical Tips:

• On-the-Job Training:

  • Most CB analysts go through an 11-week training program covering corporate credit fundamentals. However, preparing in advance will help you stand out.

• Make a Strong First Impression:

  • Show initiative by being well-versed in credit metrics and modeling basics.
  • Be proactive in asking questions and seeking feedback from your team.

By focusing on these areas, you’ll be well-prepared to hit the ground running in your new role. Best of luck!

Sources: Seeking advice on Corporate Banking modeling, Corporate Banking - Credit Analysis Skills, Credit Analyst Q&A, Credit Analyst Q&A, Corporate Banking?