High Yield (Credit Analysis) Interviews / Case Studies
Hi, I was just wondering what questions are typically asked during interviews for high yield (credit analysis) positions? Also, what types of case studies are given during these interviews? My background consists of investment banking and three years at a buyout firm, working mostly on LBOs and PIPEs, so credit analysis is not an area that I have much expertise in. Any helpful feedback would be greatly appreciated. Thanks.
For non-distressed HY, the main difference between credit and equity as far as I can see is the focus on FCF and downside (as opposed to EPS and upside/growth) based on the sell-side research I read. Understanding how the credit side of the capital structure works is important but even things like covenants and credit agreements and distressed are not part of most every-day research reports.
Interview discussion topics for my current job at a high-yield credit (grab-bag of mezz, l/s HY, distressed, and structured credit): *Minimal accounting (though make sure you know the standard leverage stats obviously) *Industry analysis type questions (more just chatting about what we thought about industry x) *A fair amount on credit agreements and reorg-related stuff (structural subordination, liens, bankruptcy process) *Products within the credit universe (bonds vs. loans, CDS vs. LCDS vs. TRS, CDX tranches etc).
After the interview I had a case study for a LBO asking for my opinion on the various debt tranches. I did an LBO model but a simpler model would have been fine because the cap structure was set.
I assume but do not know that a sell-side credit analyst would spend a lot more time focused on the 1st and 2nd bullets.
Should one expect to be asked to "pitch" a special sits / distressed investment in an interview or is that rare?
GSAM High Yield Interview (Originally Posted: 01/13/2012)
Hi,
I have an interview with GSAM high yield coming up. Seems interesting but I really know nothing about it. Anyone been through this previously or have recommendations? Thanks.
Bob Cobb
i interviewed at Shenkman Capital (high yield fund shop) and i got grilled on pure accounting questions haha. i read over a ton of stuff on the bond market and got asked very little on it
High Yield Corporate Credit Interview (Originally Posted: 11/07/2014)
What are some quantifiable metrics to focus on for a high yield corporate credit interview? I struggle with the investment decision part of it in particular. I can see what makes a strong vs a weak credit, but what makes a good vs bad investment?
How do you determine which particular instrument is worth a buy when you have two different but equally strong credits? What other factors kind of influence that? How do you determine what is a good price to pay for a bond?
I had an IG interview recently which mentioned EV/EBITDA multiples as a good thing to know, but I'm not sure why that is if we're just talking about ability to pay back debt here.
Can someone help me bridge the gap between doing credit analysis and doing investment analysis?
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Just giving a basic breakdown- In High Yield Credit Analysis, key is to always make sure you are being paid for the risk you are taking. One of the key aspects: look at the spread. Other factors to think through: Gross Debt/ EBITDA; Net Debt/EBITDA; Spread/Turn of Leverage. Those are the basic metrics. Understanding where the bond sits on the cap structure, and what assets secure the bonds are also important.
Example: All else equal (duration, non-call, un/sec, etc) if a bond is BBB- rated trading at T+150, and another trading at BB+ at T+250, you go one rating lower but pick up 100 bps in additional spread. Credit Analysis: are you being paid enough to take on that risk?
Can you explain spread / turn of leverage?
Turn of Leverage = Gross Leverage/EBITDA or Net Leverage/EBITDA I would also pay attention to the Cash Flow, and short term debt.
Turn of Leverage = Gross Leverage/EBITDA or Net Leverage/EBITDA I would also pay attention to the Cash Flow, and short term debt.
I understand leverage, but can you translate that to a buy decision? At what level of spread vs turn of leverage would you consider an appropriate risk level given some X bond rating?
Leverage matters a lot, but there isn't really a "cut off" point without other considerations. (Note: Rating agencies could have a threshold in which they would consider a ratings downgrade = credit negative") But, it's important to know what risk you are being paid for. i.e. if a bond is 3.5x levered with a ramp up CAPEX plan vs. bond that is 4.2x de-levering story. All things aside, I could go to the higher levered but credit improving thesis. When I look at my HY companies- I also think about capital structure, asset coverage, recovery rates, Cash vs ST debt and leverage cut off becomes just point in my decision.
Hope that helps. Feel free to msg me if you have more questions.
High Yield Debt hedge fund interview Coming Up (Originally Posted: 06/10/2008)
I have an interview later this week with a relatively small start-up HF. All that I know about the fund is that it is Long/Short High Yield Debt. My background is one year in a MM restructuring shop. My questions are:
1) What technicals should I expect? I am familiar with credit, leverage and valuation metrics as well as modeling since that's what I did on a daily basis for the past year, but I'm not sure exactly how these types of funds move in and out of positions and the kind of diligence that they do since I've never been on the buyside before.
2) What are some good answers on why you would want to move to a HF from banking? I realize I should know this but most of the stuff I can come up with is kinda b/s (ie objective performance measures, better understanding of markets, interest in fixed income etc.)
I feel like I have sufficient experience/ knowledge to be able to handle the interview, it has just been a while since I have had to sell myself so I want to make sure I'm prepared. Thanks guys.
advice is don't come up with bs for #2. a hf - especially small ones -is entrepreneurial and will laugh at that. (you'll be talking to the principals not some HR idiot.)
if you don't know the answer why are you doing it? (eg. '$$$', 'friends told me to, i'm a lemming')
1) Can't help sorry. I've worked buyside but not at a credit-oriented fund. Diligence levels are going to be wholly dependent on the style/manager. The range could be super-intensive (e.g., "A report sent to azo shareholders in 2001 states that employees [from Eddie Lampert's HF] had visited or spoken with people at 690 of the more than 3,000 AutoZone stores.") to cursory (i.e., simply reading sell-side research). Maybe you should just ask what their research process and investment criteria is.
2) Can't really help if you don't already know.
I'm doing the same work. How hard/easy was it for you to snag this, or other, buyside interviews?Qui nesciunt occaecati consectetur expedita maxime iusto. Non eveniet quia quos sunt omnis. Quis excepturi aut in et est illo iusto. Ad repellendus est iste.
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