How to talk about DCM Deals?
Interning in DCM this year. If I were to get an interview for FT, how can I talk about the deals I have been on? Most of what I have done so far is work on refis for revolvers and I pretty much just fix slides. How can I talk about that during an interview?
Tell them you led the deal. And you built the materials for discussion.
highlight financial modelling skills and ability to work under pressure
Good luck
From a DCM/LevFin perspective, its key that you are able to talk about the deal and know items such as what was the structure, why was it structured like this, what were your responsbilities on the deal and most importantly, what were the risks and mitigants of the credit.
From my experience so far in my internship, none of that is really discussed or even cared about. It seems like they are syndicating these loans based on the credit ratings not the company. I believe some of that stuff is focused on the corporate banking side. A senior banker even said “I don’t even know what most of these companies even do anyway”. What should I do about that?
I disagree - I have had two superdays at the strongest LevFin/DCM bulge bracket's with each superday consisting of 8 separate interviews (laterral position) In pretty much every interview the risk and mitigants question was asked. Underwriting a deal means you need to understand what the credit is all about, i.e. the risks and mitigants. From a DCM perspective you might look more at market risk rather than credit risk, but nonetheless they both are intertwined and just as important. If you can display you know your deals, the structure, the credit and market risk and as an icing on the cake, able to talk about covenants, flex items, or aggressive term sheet or SFA/documentation points, you will make a very strong impression.
I see what you are saying. It seems like it is something I have to put in more effort to understand and explain because none of that has been discussed in anything I have been involved with in my internship. I don’t even think the analysts and associates even know the risks other than the basic credit risk. What would you advise me to do? Read the CIMs and try to formulate my own understanding? I appreciate the help.
Difficult to offer you constructive advice here, as by the sounds of it your team does quite a different job than I do and that makes it hard for me to understand what analysts/associates do in your team. My advice is to pick 1, maybe 2, deals that you worked on. Preferably the larger deals (i.e. larger companies/EBITDA). You could indeed start with the CIM, and make an analysis for youself what are factors/exposures of the specific credit.
Examples of credit risk are dependency on specific raw material inputs, customer concentration, supplier dependency, regulatory risks, operational inefficiencies, significant capex/NWC needs, low single digit or even negative sector outlook growth, low entry to barriers with fierce competition, complex business model, infringing competitors, dependency on IP/patents, weak management.
Examples of market risk/structure related, are things like; low equity contribution, aggressive structure with high leverage, weak to no existing covenants (I worked on a deal recently for which structure was deemed very aggresive with additionally a springing covenant higher than the proposed EV multiple), portability clause, not attractive pricing or limited flex items, inflated deal EBITDA vs. reported EBITDA (e.g. way too many normalisations, pro-forma or run-rate adjustments), difficult business model (if a business model is difficult to grasp and not easily to fully comprehend certain risks within the business, CLO's are more likely to pass on the credit - nowadays CLO's have plenty of choice).
I hope this helps. What I do not understand though, is how you can work on refinancing a RCF, or any type of loan for that matter, without having to understand the credit. I am sure the analyst, associate or more senior person on the team has made this credit analysis. I would suggest to ask someone to have a sit-down and reflect on the transaction and go through the credit analysis.
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