Private Credit Team at Banks

I want to learn more about your jump to Credit HF. Can you DM?

I'm working in a similar seat right now. Could I DM you?

VP in PE - Other

I worked on one of these desks for a few months at a BB after working in PC, it was not for me so I very quickly left for a distressed HF. So I can't answer comp really, but have some input on the exit options.

This is not, in my opinion, a role that would be conducive to working in private credit or the single-name buyside more broadly. I realize I just said I went to a HF from one of these desk, but I recruited based on my PC role and didn't even put this experience on my resume. The analysis done is extremely topical.

When I was working in PC we would go through the VDR, speak with management and/or the sponsor, build models, do full valuations using intrinsic/relative methodologies, use expert networks to supplement our diligence, and write substantial investment memos 30-50 pages long. We also spent time on documentation (negotiating credit agreements) and getting quarterly updates on an ongoing basis for portfolio management. It may not be as deep as the PE diligence nor as process oriented, but in broad strokes it was along the same lines.

In back-levering PC funds, even though providing leverage on a single-name basis, the analysis was for more topical. First just in terms of valuation methodology, all they (we) would do was take a look at the trading multiples of comps (say this industry trades at a 10x multiple) then the leverage multiple (call it 6x leverage) and say yea we can lever against the loan at 60% because that provides us a ~2/3 equity cushion against out position. E.g. with those numbers you need multiples to drop to ~3.5x for your position to be impaired, which is unlikely in most cases. When you are in such a secured position of the capital structure, the depth of diligence typically declines and the volume per analyst (of names, not hours) increases. Our underlying diligence was not existent - we just read sponsor memos or the CIM and said yep, this thing shouldn't tank. One time when we pushed back on a deal and said we wanted to talk to the sponsor, the PC team let us have a 15 minute call with them to better understand the deal (lol what a joke). Post "diligence" we would then do a 2 page memo you could put together in 3 hours if you focused and went through the motions on approving. In those months I never utilized the real skills I had been building while working in PC. You're not modeling, you're not doing well-thought out valuations, and you're not doing real diligence. Don't remember ever doing portfolio management either, which is important in getting a long-term understanding of where you were right and where you were... less right.

But why aren't you doing modeling, real diligence, and valuations? Surely because we were bad at it? No we were among the market leaders. You aren't doing these things because the investment thesis is structural, not asset specific. That is you are in a highly secured part of the capital structure and focused on diversification. Even if that one name does tank 70% and you become minorly impaired, then the returns on a much broader and more diversified portfolio will cover you. This is the strength of the strategy - these desks rarely lose money even temporarily because it takes such a shock and/or wild mismanagement to do so. 

One last thing I should mention is the lack of negotiating power. Everyone jokes about how in PC you are a terms taker and if you don't get there the Sponsor will cut you out and sub another lender in. I've seen it first hand, and I can say that dynamic is even worse in this case. It doesn't take smart people to do this, your capital is a commodity, and you had better be willing to lend to the big PC funds at the leverage levels they want in order to keep the deal flow coming.

It won't be impossible I am sure to work upstream to PC, but personally if I were recruiting for PC this is not the talent pool I would be tapping. I think the jump from this to PC is a longer shot than the jump from PC to PE. So - what exit options are viable? I would guess: (1) securitization / ABL investing seats that are similarly based on a structural / diversified investment thesis, (2) maybe some sort of broader asset management role that is not single-name focused.

Final note, though a lot of what I wrote is negative, these aren't bad seats. My writing is negative because its a negative answer to your question. Things to like, which I'm sure others can better supplement, include safety of the strategy, relatively easy work where you are unlikely to be wrong, solid comp esp at the more junior levels where everything is somewhat standardized along the boundaries set by the broader institution, and a better WLB.

I am currently in a LevFin role (BB bank) and was offered a role in a team that would do 3 things: back leverage, single name private credit (senior lending for sponsor and corporate mid market companies with leverage 4x), snd IG private credit solution. The team is new. Would you recommend I take the role? 

Question 1: Yes, from LevFin you have a real shot at doing just about anything you want afterwards. Maybe not directly but you can go to PE/PC, public credit, and if you wanted public equities you could there but prob a 2-stepe exit. For non investing roles same thing, depending on what it is can go directly or make it a 2 step exit with some PE then whatever.

Question 2:I would not know TBH, but my guess is CLO origination would be further off the goal as I am not sure they do any single name analysis at all. I think that's setting up the vehicles that house the single name credits. But could be wrong here.

Is there a specific bank in mind you are asking these questions about?