Case study | secondaries & private credit

For case interviews in secondaries private equity and private credit (direct lending, mezzanine, unitranche), preparation should focus on both technical modeling and understanding the nuances of these areas. Here's how you can prepare:

1. Modeling Preparation

• Key Models to Master:
  • DCF (Discounted Cash Flow): Understand how to value cash flows from credit instruments.
  • LBO (Leveraged Buyout): While not directly related to secondaries or credit, LBO modeling is foundational and often overlaps in skillsets.
  • Credit-Specific Models: Focus on structuring mezzanine and unitranche debt, calculating interest coverage ratios, leverage multiples, and stress-testing scenarios.
• Practice Timed Tests: As highlighted in WSO threads, practice building models under time constraints. For example, aim to complete a quick-form LBO or credit model in under 45 minutes.
• Mock Cases: Reach out to mentors or colleagues who have gone through similar processes. Many WSO users suggest leveraging old case studies that circulate within the industry. These often include secondaries and credit-specific scenarios.

2. Secondaries-Specific Prep

• Understand the Dynamics: Secondaries involve buying existing stakes in private equity funds or portfolios. Be prepared to analyze fund-level cash flows, NAV (Net Asset Value) discounts, and IRR (Internal Rate of Return) sensitivities.
• Key Metrics: Focus on metrics like DPI (Distributions to Paid-In), TVPI (Total Value to Paid-In), and MOIC (Multiple on Invested Capital).
• Case Study Practice: Practice evaluating a portfolio of fund investments, assessing risks, and determining pricing based on secondary market trends.

3. Private Credit-Specific Prep

• Direct Lending: Be ready to model cash flows for unitranche or mezzanine loans, including interest payments, amortization schedules, and covenant analysis.
• Stress Testing: Show your ability to stress-test scenarios, such as changes in interest rates or EBITDA declines, and their impact on debt service coverage.
• Case Study Practice: Mock cases might involve structuring a direct lending deal, evaluating borrower creditworthiness, or pricing a mezzanine tranche.

4. Resources to Use

• WSO Training: The Private Equity Master Package and Private Equity Interview Bootcamp are excellent for LBO modeling and case prep. These include detailed LBO tests and case studies.
• Networking: As suggested in WSO threads, ask friends or mentors for materials. Many have gone through similar processes and can share relevant mock cases.
• Live Training: Consider attending the Modeling & Valuation Bootcamp or Private Equity Interview Bootcamp offered by WSO for hands-on practice.

5. General Tips

• Practice Explaining: Be able to articulate your thought process clearly. Practice explaining your models and assumptions to someone unfamiliar with finance.
• Tailor Your Prep: For secondaries, focus on fund-level analysis. For private credit, emphasize borrower-level cash flow modeling and structuring.

By combining technical modeling practice with a deep understanding of secondaries and private credit dynamics, you'll be well-prepared for your case interviews. Good luck!

Sources: My Path - MBA Banking Associate to PE, Q&A: 3rd Year PE Associate ($10bn+ AUM, MBO/LBO, equity, mezz, distressed debt), Q&A: Private Equity Associate, started after my undergraduate, Q&A: Associate at MM Private Equity fund, Private Credit Secondaries Case Study Insight