Moving From M&A to LevFin (internal move). How to prep?
Hey all, I am at one of those banks which offer a rotation for 3rd year analysts. Have been in generalist M&A and keen to learn how best to prep for a move to LevFin?
Just to be transparent, have not advised on deals where my bank was doing financing so limited knowledge or LevFin. What would you recommend?
edit: will need to hit ground running and at least be up to speed with 3rd year LevFin knowledge (theoretical / modelling of course, won’t have financing deal experience)
Bump
LF is tough to understand without actually being on the job. Wouldn’t worry about modeling. It’s all just LBO / paydown model without actually calcing IRRs / returns. Just understand cash flow sweeps
Thanks! Actually, I meant stuff like: liens, subordination, waterfall, value breaks, debt derivatives etc. So basically more like stuff that comes out Credit Agreements?
Yeah exactly, you’ll be making a lot of term sheets so important to understand items in the CA as well as fee letters and where and when you’ll need certain flex items. You will not have any issues with modeling coming from M&A, it will be much easier nobody builds 3 statement models from scratch in LF.
Got it, that's helpful to know. So any particular way to ramp up on the items mentioned above (waterfalls, liens, subordination, value break, pricing etc.)? Or is it all purely on the job learning.
Read S&P leveraged loan primer, read S&P HY primer, read credit agreements, read LCD articles. I think most of it is on the job. It will be impossible for you to be “up to speed” when you hit the desk. There will be a ramp up period. You’ll need to learn
- typical leverage profile that are company/industry specific
- how to look at debt comps
- understanding breakeven for Refis (not difficult)
- understanding incremental capacity
- understanding MFN
- flex items
- term sheets
- Ratings process
- LF often quarterbacks diligence at banks so you’ll have to run that process which if from M&A you probably are good there
- you’ll need to understand what structures make sense in said situations (you can be quite creative here and this is a fun part of the job) what OID? What spread? IL / Unsecured or 1L / 2L? Minimum equity? Why not 1L stretch? Can we take out the 2L and refi with a 1L stretch? What does the breakeven look like on that? What are the current prices and maturities of the existing tranches and why haven’t they refi’d already? Who owns the existing tranches? Are the direct lenders? In that case current pricing structure won’t be applicable, etc.
Amazing, superstar! Any idea where to find actual credit agreements (not just samples etc.?) Will try and touch upon the things you mentioned over the next few months!!
SBd you, thanks!
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