From what I understand, their size and balance sheet typically presents a conflict of interest due to who owns debt, but I'm having some trouble fully understanding and would really appreciate an explanation.
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Because RX is for NERDS and we are BB CHADS
Imagine BB originates bank loan tranche to CrapCo.
CrapCo is in finance stress. Are they going to retain the BB as a debtor-focuses RX group? Obviously not, cause the bank isn’t about to negotiate against itself to cut its own exposure and take a loss. Similar, are the holders of other tranches going to retain the bank as a creditor-focuses RX group? Obviously not, cause the bank isn’t about to argue to allocate value away from the bank loan tranche.
Maybe when private debt funds complete overtake leveraged loan issuers we will see BB RX groups (being somewhat sarcastic)
Thanks. I understand now.
RX is a somewhat esoteric skillset and building it out at a bank would require a huge amount of time and money invested. RX groups also don't generate the same level of fees as BB coverage groups which get both M&A and financing fees. BBs' strengths are their balance sheets which they can't monetize in RX processes outside of providing DIP financing, which they already have desks that do that, and even in that case there would be an inherent conflict between an RX advisor and a DIP financing desk. So there really isn't a huge incentive for them to do so, and notable conflicts. It's just not something that really lends itself to BBs.
Because it’s a conflict of interest.
GS has an RX team
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