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.

Comments (18)

Best Response
6y
BillyRay05, what's your opinion? Comment below:

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."

  • 2
6y
Aesop, what's your opinion? Comment below:

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?

6y
DullCarrot, what's your opinion? Comment below:

Credit: HY LO to Distressed (Originally Posted: 01/13/2014)

Curious to hear if any distressed guys have seen analysts move from long only HY shops (BDCs, CLO managers, whatever you want to call Eaton Vance/Fidelity/Invesco) to distressed type houses (more event/special sits style than workout). More interested in shop to shop moves, but also interested in hearing about internal moves at the multi-strats.

Also at what career stage(s) is this most and/or least likely to occur?

Finally, if looking to move to that event/special sits seat, would it be better to stay in a SS publishing research seat and build up contacts on stressed situations or hop over to a buyside seat at a shop with a more constrained mandate (like a pension or insurance fund that doesn't play CDS, short bonds, or play equities)?

6y
CreditAnalyst85, what's your opinion? Comment below:

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.

  • 1
6y
DullCarrot, what's your opinion? Comment below:
bananafreak:

I personally have not, mostly have been restructuring/M&A analyst background or people with distressed credit experience.

Yeah, it does seem like those shops tend to pull from the lev-fin/restructuring/PE talent pool. I do remember Kent/Hunter from DDIC making a statement regarding the use of CLO managers as a backdoor into these sorts of funds. I assumed it had something to do with the analysts at those shops getting workout exposure when having to deal with a busted investment in an older vehicle. Was curious to see if this applied broadly to other HY LO mandates and whether this view still held

CreditAnalyst85:

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.

Appreciate the advice. Hear you on the SS special sits seat as those groups tend to have solid placement and the skill set is more transferable. Aside from the switch to desk analyst, though, have you seen any of the aforementioned moves? I could swear i've seen it a few times and I'm curious to hear if there are particular shops that are more flexible on this or what this particular path could even look like.

6y
CreditAnalyst85, what's your opinion? Comment below:

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.

6y
oreos, what's your opinion? Comment below:

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
  • 1
6y
number27, what's your opinion? Comment below:

Distressed Credit Fund Qualifications (Originally Posted: 03/02/2009)

Can someone who currently works at a distressed credit fund or at a hedge fund/PE fund that has a distressed arm shed some light on this?

Apologies in advance for the diarrhea of questions below, but they are a stream of thought for what I would be curious about:

What type of experience do distressed funds look for? Are they focused on restructuring or leveraged finance experience? Given that bulge bracket banks do not have significant restructuring practises due to conflict of interest, is restructuring experience at firms with reputable restructuring groups viewed more favorably (e.g., Lazard, HLHZ, Jefferies, Moelis)? What is the interview process like at distressed funds? Are there the traditional modeling tests (I can't imagine LBO modeling skills are too relevant)? Do distressed funds recruit under the typical PE time schematic (i.e., recruit now for Summer 2010)?

The above and any other insight into the sub-industry would be greatly appreciated.

6y
Cornelius, what's your opinion? Comment below:

still trying to figure that one out for myself.


The world has changed. And we must change with it.

------------ I'm making it up as I go along.
6y
MezzKet, what's your opinion? Comment below:

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...

6y
oreos, what's your opinion? Comment below:

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
6y
Kenny_Powers_CFA, what's your opinion? Comment below:

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.
  • 2
6y
goalieman688, what's your opinion? Comment below:

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