Why You Should Consider Restructuring – Common Misconceptions/Insight on RX Groups
This is my first post since I created this account about 1.5 years ago. I benefited a lot from this community, and I want to take this time to give it back.
To tell you guys a little bit about my background, I went to a semi-target and was fortunate enough to intern at one of the top RX groups (PJT/LAZ/HL/EVR) – I will provide as many unbiased insights as I can and address key misconceptions people have about RX in general.
Before I dive into specific banks, I would like to address key misconceptions that prospective candidates have about interning/working at RX groups:
- You are not siloed into distressed opps for the buy-side.
- Plenty (I would say ~50%) of kids exit to MFs/UMMs and even non-distressed HFs that most people have to work at another buy-side role before even being considered. So why do you see so many RX analysts exiting for distressed shops?
- Sampling bias. Top RX shops begin interviewing kids as early as February and March, which means that these students studied for RX technicals plus other materials to prepare for coffee chats as late as January. Naturally, some of them will continue this interest when headhunters call and ask what they are interested in at the beginning of their full-time roles.
- You don't just work on "bankruptcy" deals. You work on "distressed" deals
- This is also a concern I had as the market condition when I got the offer and when I joined the group could not have been more different. Every business was struggling to survive when COVID first broke out but now almost every business can raise liquidity in this market condition. This worried me as the number of bankruptcy filings was at a record low level when I was about to start my internship.
- Yes, it is true that this industry can be cyclical and my workload was slower than my peers' at M&A or the RX class above me at the height of COVID. But I clocked 70-80 hour weeks on average, so did other banks that I had friends interning at. This is because of two main reasons:
- Because the companies are not filing for bankruptcy does not mean that they are not struggling. As you will learn if you become interested, RX groups provide advice even when they are not in bankruptcy.
- This was maybe specific towards my firm and one other firm, but senior bankers wanted fresh in-depth updates on key industries we often deal with. Because of this, I learned more about what has been going on in some specific industries throughout this internship than I would have imagined.
- Because the deals are often distressed situations, it doesn't mean that the work environment is "distressed"
- I only heard about this misconception through an underclassman who reached out and asked. So skip over it if you never heard of it. Basically, he asked whether the work environment was unfriendly because the clients and counterparties were unfriendly.
- This is simply not true. People are so chill. So did what my friends said about their groups. You need to understand that there are not that many bankers/lawyers/consultants who are involved in these types of deals, so words get around. Yes, there are lots of game theories involved, but that doesn't mean that people shout at each other on calls and meetings. (I heard it does happen though?)
Now, the fun/interesting part. I will try to provide more color on each group that I had some interactions/interviews with or have friends interned/worked at.
I am not going to comment on their culture, as that is a very subjective metric based on individuals.
PJT RSSG: Probably the most sought-after analyst program out there with GS TMT / MS M&A. I think this is the result of its BX R&R legacy and strong presence in both debtor/creditor mandates. They mostly recruit out of the top targets, but I think this is a result of students who become interested in RX earlier tend to go to these schools more than anything else.
Lazard (NYC/CHI): Historic franchise since Barry and Terry. Generalist program for NYC and RX-specific for CHI. You go through another networking process during your FT training to get placed in the group for NYC. The global head of RX sits in Chicago, which is why I assume they have the RX-specific program in that office.
HL RX (NYC/LA/CHI/DAL): RX-specific internship across all locations. A common misconception is that HL is a creditor shop, but they do have a sizable presence in smaller debtor mandates. One thing to note is that HL is very decentralized, so deal flows vary by office and take time to learn about what each office has worked on before asking about certain deals during coffee chats/interviews.
Evercore: RX-specific internship. Killed O&G debtor mandates during the industry downturn in 15/16. They have been picking up on debtor mandates in other industries since then, more so on sponsor-backed ones, but I would say that they have a stronger presence in creditor mandates for other industries.
Moelis: Generalist program throughout the summer and the analyst program. I heard that you need to develop some reputation/relationship as an intern and as an analyst to get consistently staffed on RX deals. Great group – worked on Hertz, which is the most high-profile bankruptcy since PG&E.
Perella: To give more background about this group, Tudor Pickering Holt (TPH) is an energy EB that missed out on some great RX mandates in the O&G downturn during 15/16. So PWP and TPH merged and picked up some great deals since then, especially during COVID.
Guggenheim: RX-specific internship. Acquired Millstein before COVID hit. Picked up some great mandates since then. I don't have any insight into how the merger has impacted the group, but Millstein was founded by Jim Millstein, who lead the restructuring practice for the government during 2008 before leaving LAZ RX.
Rothschild: Similar to LAZ NYC, generalist program for the summer and network your way to be placed into the RX group for full-time during training. Has a strategic partnership with Intrepid, another energy EB, which explains the bigger presence in O&G mandates during COVID than it has in the past. Strong sovereign advisory practice.
Greenhill RX: Lead by a former co-head of Rothschild RX. They recruited specifically for RX my cycle. Fewer RX MDs than others, but, based on observation, the firm has more flexible mandates in terms of deal sizes and debtor/creditor/UCC than its peers.
Centerview: Generalist program for the summer and for the three-year analyst program. Like Moelis, you need to raise your hand and become the go-to guy is what I've heard. Fewer RX MDs than its peers but the analyst program is generalist so no need to worry about the live deal experience due to CVP being CVP.
Ducera: RX-focused EB, hence RX-specific internship. Founded by a former partner at PWP. This group has popped up on creditor mandates for many high-profile deals during COVID. I would say that Ducera is a more creditor-focused shop than HL.
TRS Advisors: Founded by a former co-head of Rothschild RX. Saw these guys pop up on key creditor mandates like Ducera during COVID. Recently merged with Piper Sandler and am excited to see how that would work out since precedent mergers have worked out great for others.
To be clear, this is just to provide prospective candidates some colors on what I have learned networking/interviewing/interning for RX. Happy to add more things as I go along, and thank you once again for all the insight this community has provided.
Thanks! Glad it was helpful, and congratulations on your offer!
I divided my preparation process by three ways:
For training, we had a generalist training with other groups briefly and then an RX-specific training dedicated for a week or so before getting staffed on live deals. That was sufficient enough, in my opinion, so did what my friends said about their respective firms. But one helpful tip I got was to try to catch up as much as you can before the second-years leave. Because you will be given more responsibilities between that time when second-years have left (late June) and when the new first-years will arrive (late July/early August).
I would say the below is what an incoming analyst should try to know in order of importance.
First (and most importantly by far) is to have a good handle on Excel modeling, which focuses on liquidity projections, complicated capital structures and their projected cash flows, pro forma'ing capital structures for the new capital structures, recoveries by tranche / holder.
Second is just a basic understanding of how to analyze capital structures. It's important to understand a company's entity org chart, at which entities each tranche of debt sits, whether each tranche is secured or unsecured and what it's secured by, how to identify different baskets of debt and what incremental leverage is available through the various debt baskets.
Third would be a basic understanding of the bankruptcy process. First / second day hearings, what a stalking horse is, what's included in stalking horse / bidder term sheets, what a DIP loan is, etc.
Also, separately from Rx-specific prep, just general habits that good analysts have. Check your work eight times before you send it out, ask questions if you don't understand something, always have a positive attitude, always volunteer to do things if you have capacity, have a broader understanding of the deal than just what you're working on.
You can see that the fact that RX attracts smart/polite/nerds is true, not a single MS in the thread ;)
wait until your client is pitted against APO in a chapter 11 lol
If you have experience in M&A a lot of that will be transferable. Restructuring teams still do a lot of valuation and process work which is either identical or very similar to what you're running in an M&A sale process. If you're doing a 363 sale, for example, you're basically running a court-supervised M&A sale process. Additionally, raising of DIPs, stalking horses, etc. will require the preparation of marketing materials and process letters, and the coordination of diligence not dissimilar to other processes.
Rx teams do more than that, though, which is where moving from M&A will require learning these additional skills. Many M&A juniors don't know much about the capital structures of companies outside of maybe their interest rates and doing rudimentary debt schedule projections. Many times teams will rely on their levfin team for further knowledge and guidance on anything more technical related to the capital structure. As an Rx Analyst / Associate, you will be responsible for understanding the debt stack pretty intimately, which includes a more detailed understanding of company interest payment schedules, qualitative and quantitative considerations as they relate to subordination / security, what each tranche of debt is guaranteed by and who the obligors are. Additionally, you'll be getting much more into the credit docs to understand what incremental debt capacity there is under each agreement, how the different agreements interrelate, more detailed understanding of how the covenants are calculated and monitored and what constitutes / does not constitute a default.
As I said above, you'll also need to gain an understanding of the processes / requirements of various restructuring / bankruptcy proceedings. Easier to pick up, you'll also need to be able to prepare liquidity projections and understand how different deal structures impact the pro forma capital structure and liquidity runway of the Company.
Finally, for creditor-side mandates, your role can be quite different given that your job is essentially to diligence the Company, analyze the different deal structures, keep your group up to speed on developments, and understand the tactical side of things (every deal in Rx can be very unique based on who is organizing, what each group represents and how the groups work together or against each other, notwithstanding the complexities that can arise from introducing other stakeholders that represent other claims on the Company / estate).
One thing I’ll say (very biased but I strongly believe this), I think RX bankers are forced to utilize the most critical thinking at a junior level across the entire sell side.