Preparing for interviews at some EB's for restructuring and from a lot of posts i've seen it is termed "very technical", anybody know what that actually means. Is it case studies? Modelling questions? Brainteasers? Any help is much appreciated. Thanks
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case studies and modeling. check out moyers distressed debt and HL’s case study
Second this.
Can you please clarify what you mean by case studies and modeling? I have read moyers, HL, and have spent time on technicals across the expected topics.
I know that it is expected you should be prepared to discuss a case you have read about (as in a distressed company, a bankruptcy, etc.), but did you mean case study as in on-the-spot case where they give you information about a company of their choice?
Besides paper LBO or waterfall exercises, I don't assume you mean an "actual" modeling test right? -- that seems irrelevant for undergrads.
Following on that, Is it more of a verbal "think out loud' thing or an actual modelling assessment where you're in a room alone for 3 hours.
bump
Know your valuation technicals well and how a distressed company would change these. For a case study, they generally give you a fake company and you go through their capital structure and what you would recommend for a restructuring. They just want to see how you think and if you generally know your stuff.
can I PM ?
go for it
Thanks for your response. Don't want to bother you too much with follow-up questions, but since it seems like there isn't much visibility on restructuring interviews (and we're all wondering the same Q's), would you mind continuing to clarify the case study?
I understand there's quite a few questions here, so if anyone else in this thread is willing to also jump in with input, we would highly appreciate all the help.
What is an example (either in your experience or hypothetically) of a recommendation that would be made based solely on the information in this type of exercise?
How long is this activity? Are instructions given verbally or on a piece of paper / computer?
To arrive at a conclusion, does the interviewer typically begin by prompting you to calculate different things and ask for moving pieces (such as with a paper LBO) -- or are you given a bunch of info at once and it's mainly conversational in nature.
At least with mine, they give you info on a company (debt tranches, EBITDA, CapEx, etc.) and then ask you for your opinions on what you recommend for the client. Would you recommend a liquidation, restructuring, etc.? They will help walk you through and give assumptions along the way to help you reach a conclusion, but it's very much seeing how well you understand the options available to a company and if you can defend your reasoning. If you can defend why you would do one over the other well, then it proves that you know what you're talking about.
I can't speak to anyone else's experience, but mine was one full interview (30ish min).
It’s the typical IB technical skill set plus some additional questions specific to Rx. Basically understand capital structure well. They love to ask about ParentCo debt vs OpCo debt, recovery for secured vs unsecured, etc.
Has anybody used any of Wall street prep's resources on rx? Are they any good?
Generally you can think of RX interviews as being a blend of two components:
Classic technical questions, with an RX bend, would be around things like: PIK through the three statements, asset write downs through the three statements, how would a DCF be different for a distressed company, the EV for a distressed company, etc.
RX specific questions can be further broken down into qualitative and quantitative components.
The qualitative involves you showing you understand the general dynamics of restructuring (including what is actually done on the job). For example, what are the characteristics of a distressed company, what do RX bankers actually do (it’s not all Chapter 11!), what kind of out-of-court restructurings (broadly) exist, what’s the Chapter 11 process involve, what are cram downs, what are DIP loans, who is and is not an impaired class, what is included in profiles and screens, etc.
The quantitative questions will revolve around basic bond math (estimate YTM, what happens to YTM if the bond’s maturity is one or two years longer, etc.), waterfall questions (who is the impaired class, what’s their recovery, etc.), find the interest rate given leverage and coverage ratios, etc.
Obviously, there are lots more questions, but as a general study plan it’s a good idea to think in terms of knowing: classic technical questions, qualitative RX specific questions, and quantitative RX specific questions and figure out what areas you’re weak in.
As a general note, I’d also say that in a classic IB interview getting one or two technical questions wrong is probably going to get you dinged. However, in a RX interview the expectation is not that you’re going to give a brilliant, fulsome answer to every question.
Probably the best interviewees are those who show they have a contextual understanding of what RX is; what are the possible outcomes in a restructuring, what are the kinds of deals done, what’s the day-to-day job really like. This will likely be even more the case moving forward as lots of people who don’t really know what RX is will be applying to RX roles and RX bankers want to make sure that folks know what they’re really getting themselves into.
As a sophomore applying for SA I was asked these questions along the process:
-how does an asset divestiture change the leverage of the company?
EDIT: My answer (the interviewer did not comment in particular and moved on so not sure how correct it is). First of all, I started by saying that this is a relevant issue in this current market with many companies doing unrestricted subs transfers (divesting assets, transferring to unrestricted subs, and raising new debt there). To look at how the leverage will change you need to look at how EBITDA and debt will change. Starting from EBITDA: we can assume that the credit docs will have some EBITDA attributed to each of the company's assets so when the asset is divested, EBITDA will fall by the corresponding amount. Then, the company will use the asset in the unrestricted sub to raise new debt and hopefully use the proceeds to reduce the debt in the mother company. So to sum up we have less EBITDA but also less debt, so to understand if leverage goes up or down we need to compare the multiple of EBITDA and debt of the asset. For example, if 100 of EBITDA was attributed to asset A, and asset A would be able to raise 150 in debt in the unrestricted sub, leverage would go down. On the other side, if the asset generated more EBITDA than how much debt it was able to raise, leverage would go up. If you don't reduce debt and just divest the asset, leverage will increase because of the lower EBITDA.
-two companies have everything identical, one has a market cap of 1mm and other of 5mm, which company has the most volatile stock?
EDIT: I think that a good way to start answering this question is from saying that for distressed companies equity trades like a call option. When you try to value a call option, you can use among others the Black-Scholes Model that ofc has volatility as an input. You can logically think about it and understand that the call option of a volatile stock will be more valuable than the call option of a less volatile stock (assuming strike price, current stock price, time to expiration and risk-free rate are the same). Therefore we can conclude that the company with a market cap of 5mm will be more volatile
-question post reorganization debt and the recoveries?
EDIT: The post-rx debt is distributed starting at the top of the cap structure but better to see an example. so let's say a company has $100mm of senior debt and $100mm of sub-debt. It generates $50mm of EBITDA. Based on comps, we think a 3x valuation and 1x leverage is acceptable post-RX. Therefore, our new company is worth $150mm and will carry $50mm of debt (and therefore equity of $100mm). Senior debt needs to be repaid in full so they will be rolled into a new $50mm loan and get their remaining $50mm of value in equity. They get full recovery. There is only $50mm of value left for sub-debt holders, so they will get the remaining $50mm of equity. 50c on the dollar recovery.
-how can a company go bankrupt suddenly without any debt?
EDIT: basically ask me if I read Moyer without asking me if I read Moyer. Chapter 8 gives the perfect explanation of this concept. So if you don't have debt you can't ofc miss a principal or payment and we can assume that some form of different liability comes up and causes a strong decline on the business. Moyer explains that there are two major buckets: tort claims and contract liabilities. Tort claims have been common for tobacco and silicon businesses historically, and companies usually seek chapter 11 protection. Tort claims are very hard to predict and value, and they are often not entirely covered by insurance so they need to be carefully evaluated from buy-side firms, but on the other side when tort claims arise the market usually assumes the worst and discounts the underlying security. Contract liabilities are associated with uneconomic or bad contracts. Many businesses use derivative contracts to try to reduce risks in their business, but sometimes they can become very disadvantageous and firms use chapter 11 using the power to reject executory contracts.
Note: I am not even an intern and honestly I am not sure why using chapter 11 for rejecting contracts is not considered bad faith? Could someone with more experience explain it?
I can take a stab at these but I’m curious if youd be willing to write up the answers? Especially the asset divestiture leverage question. I feel it can go one if two ways
Edited my post, feel free to share your answer as well !
Believe the judge would decide what would qualify as bad faith - NRA ch11 being thrown out is an example of that (but not an example of a ch11 with an executory contract)
but if a debtor can prove to the court that they would not be able to pay or operate due to certain contracts, it would be in good faith
Realize that this is an old thread, but am going to bump to provide a reply to this comment. Executory contracts are rejectable in BK because they are, simplistically, a promise in exchange for a promise. To illustrate by using the example of an E&P who filed and is looking to reject midstream contracts (common theme right now, putting aside real property or covenant running w/ the land arguments), the E&P has agreed to pay future fees to the midstream operator in exchange for the midstream operator transporting their oil in its pipelines (or providing gathering & processing services) in the future. At this point, there's been no consideration provided by either party for these future services.
Given that the overarching function of the Ch. 11 process is to allow struggling companies to continue to operate post-emergence, the judge will generally grant the debtor's motions to reject executory contracts if they can demonstrate that fulfillment of those contracts would be damaging to the business. Circling back to the E&P/midstream contract example, let's say that the contract was signed 5 years ago at a minimum volume commitment, the E&P has shut-in a significant portion of its production and is producing volumes that represent 25% of the MVC. Furthermore, the contract is now at significantly above market rates. It's clear that retention of the contract would have a materially adverse impact on the reorganized entity, so the the judge is going to reject it.
Thanks a lot for your answer, it was not an old thread since I just wrote the answers this morning ahahah
I perfectly understood your example, thanks for taking the time to write it down!
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