Moving from commercial credit to distressed credit/debt

I am currently fresh into a new job as a commercial credit analyst at a bank with a 1.2bil in assets. I wanted to ask the members of WSO a few questions:

1.) Is it possible to move from commercial credit (analyst) to distressed credit/debt (analyst)? if so,

2.) what would be the best route? I was thinking leverage finance or restructuring then making the jump to distress.

3.) What skill set would I need to develop?

I am looking at roles that would give me the skill set so long-term I can ultimately generating/researching ideas, modeling those ideas and then turn around and managing a portfolio of those ideas.

Any advice or questions are welcome.

 
Best Response

Honestly? Highly unlikely.

Why would they hire you when they could hire a modeling whiz out of banking? What do you have to offer over the Equity/HY/Desk analyst, whose modeling/research/market knowledge is much stronger than yours? Honest questions.

Moving to LevFin (if that is an option) is obviously the best way to go.

"Sounds to me like you guys a couple of bookies."
 

BillyRay05,

I appreciate you taking time out of your day to reply. These are valid questions you pose. Over HY/Distressed Analyst I have nothing in terms of experience. However, over and equity analyst I like to think I have a competing chance (only if they haven't worked for a top firm, have a CFA and/or went to a top MBA program lol). I have 5 years of ER/PM (PM associate) experience at a couple boutique firms 80mil - 100mil AUM. I worked closely with PMs on the main fund where I covered Technology, Industrial and Energy stocks. I also help to manage accounts for wealthy individuals. When needed I wrote code for their proprietary system and I develop apps that helped the PMs manage portfolios more efficiently nothing special. My languages are (C++/C#/python, SQL) which I am pretty decent with. Educationally, I have a BSc in Software Engineering and BSc in Artificial Life programming ( branch of A.I) (non-target) and I have a MSF (non-target) though the name is pretty well known considering they have one of the top hospitals in the world. Which has helped in terms of getting looks/networking. Basically regardless of whether or not a place would fully utilize my skill set I consider myself a double asset. I have experience looking at companies from an equity side and a debt side (commercial credit) and I can provide additional value by being an in house developer if need be. Before you ask, no I am not interested in being a quant. I like fundamental analysis and I like the idea of deep value/troubled companies. I moved to CC because surprisingly I was offered more money even though I had to be trained. Just want to clarify I am not trying to brag about what I can do just answering you question so you can better advise.

If I were to move to LevFin could I leverage that to DD or restructuring?

 

Publishing research is NOT where you want to be. You probably want a SS desk analyst role. The paradox of publishing at large banks is you will get the most exposure to flow and events, but if your bank is very reputable they will also likely be involved in some aspect of financing the deal/event or advising, which means you'll be totally restricted, not to mention, you will not directly see the flow if youre not on the trading floor and publishing can't give views or recs on events the way a desk analyst can because you pitch ideas vs. and index, not for absolute gains or momentum trades.

Try for a fund that does what you want or sell side desk analyst role.

 

Well I guess distressed recruiting restructuring people is pretty self explanatory. As far as lev finance, that make sense since they know Credit documents inside and out and structures financing.... A distressed shop that buys with the possibility of owning the company probably especially like those backgrounds vs. a distressed shop that trades more.

I'm not so sure long only would have the skills even for a non workout shop because long only ideas are based mostly from fundamental analysis, while distressed trades more on documents and legal precedent and court decision. I would imagine that those that make the switch do a lot of independent learning and can talk about that stuff.

 

I was offered Ares London who are mainly a CLO platform with a view to get into distressed later on. I ended up declining because i had better learning opportunities else where (i think, we'll see how it works out). Ultimately, you'll be fighting your employer, hoping for your analysis (or someone's) to be wrong so you can go through a workout. You'll be looking at the potential downside associated with a RXing but wont be seeking out those opportunities and you'll likely develop a more par bank mindset of minimizing your writedown as you probably wont be able to take equity into the CLO (hence lots of funky profit participating notes are originated in RXings to accommodate for CLOs).

"After you work on Wall Street it’s a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side.” - David Tepper
 

my experiences with distressed guys is they come out of leveraged finance as knowledge of credit agreements / note purchase agreements / collateral agreements / intercreditor agreements is key to having a nice recovery after bankruptcy... modeling differs from that of an LBO in that it focuses on restructuring the capital structure, obtaining a DIP type finance and seeing what the firms value is in order to repay the debt waterfall style with the equity and new debt...

just my 2cents on the topic...

 

Casual little bump.

"After you work on Wall Street it’s a choice, would you rather work at McDonalds or on the sell-side? I would choose McDonalds over the sell-side.” - David Tepper
 

Agree with what Mezzkat said, in my experience it's largely lev fin for the reasons he noted and restructuring for experience with the workout/negotiation/bankruptcy process. Our senior distressed specialist has experience at both BB lev fin and a restructuring boutique. Some middle market credit funds really prize guys from MM commercial lending groups at banks/non-bank lenders, for example BDCs and places like CIT as well, as working with smaller companies with weaker processes, shittier systems, etc is very different from running a term loan syndication for a $3bn EV company that's been in the credit markets for 15 years, and taking a small company with a closely held capital structure consisting of family members and a handful of lenders and trade creditors is very different from restructuring a huge LBO that went sour.

To answer some other questions: I had a modeling test, it was a generic lbo model as we do a wide range of debt but usually transaction-driven (mezzanine for buyouts, levered recaps, distressed, etc) where the capital structure is changing. Our distressed modeling really depends on the situation. I was also asked about capital structure, covenants, seniority of claims (ie what happens to tax payables in a bankruptcy, trade claims vs unsecured vis a vis critical vendors, etc) etc by the distressed guy during that portion of the interview.

An increasingly large portion of credit money (both par and distressed) is run by affiliates of PE firms and from what I hear they recruit on a PE cycle. Other shops (like the one I work at) are more like most hedge funds where recruiting is on an as-needed basis.

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
 

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