How are deals sourced in RX banking?
Are they mostly sourced through the bank’s coverage groups, through RX MD connections, some specific bidding process, or a mixture of all three? I would guess that debtor would have more variety of sourcing methods, but is creditor mostly through an RX MD,s own connections? Also wondering what these banks compete on, is it just price, or is record important too in RX?
It’s a mix of the things you alluded to, dependent on debtor vs creditor.
On the debtor side you may have the situation where they’ve previously used a banker before and are hired that way (I.e., coverage group plug). Also, distressed companies almost always hire legal counsel prior to a banker so the in may come from a reference via them. Could also be a sponsor-backed company where the PE firm has a great relationship with a specific bank. Also pitches exist in the Rx world so if you don’t get hired through the above methods you may get invited to pitch if you’ve been following the situation.
Creditor side is similar. References via legal counsel and pitches exist. However since there isn’t one sponsor and it’s usually a group of lenders, relationships can be weird (think you might have represented an ad hoc group in the past that left a smaller group in a bad spot and now you have lenders from both in the group you’re pitching). Alumni who’ve left the bank to a specific firm help, especially if they’re part of one of the larger holders of the debt which drive the hiring discussion.
All in its similar on both sides (investor references, counsel references, pitches, etc.) with a couple nuances.
Thanks! One more more question, would it be common for larger/more-prolific distressed players—such as an Oaktree, Silver Point, or Elliot—to hire an RX bank to represent them, or is that role entirely in-house? And if so, would they almost always hire a specific bank to avoid conflicts of interest (because I know you mentioned awkward situations when a bank had represented a client that led to the potential client getting screwed over in a previous deal)?
some PC do have inhouse teams(like kkr, ares) but will still usually hire a rx banker to represent them in larger deals. For PC, workouts is a loss mitigation tool and so it makes sense to outsource it in most cases.
i believe for the SS players juniors will also do workout due to nature of the role but they also will use rx bankers most of the time, another thing to note is that a rx banker will get hired to represent an entire class of creditors, obviously the workout team of one creditor cannot represent the interests of the whole group and impartial advisors are needed
Relationships at attorney, sponsor, to some extent corporate, lending banks and increasingly private lender level. Some sponsors just go with FTI (I know you mentioned banks but same idea) because they always have. Alternatively sometimes you need a big platform that ppl are confident can throw enough bodies at the problem so organization size can play a factor. Sometimes there’s an industry element that ppl are confident brings the right expertise. But it’s an old boys club for the most part.
Thanks so much for the response! One follow-up question: you mentioned RX consultants, would they also be a common source for recommendations of RX banks? Or is it almost always legal/sponsors/corporate/lenders that recommends the bank?
Sometimes but it's not a common occurence, atleast formally. Usually the main sources r the lawyers, sponsors, corp mgmt or lender groups. Informally, they're usually consulted on a shortlist of banks, esp if the corp has been working with them a while. Formally, they sometimes vet the banks. Basically, they're not a lead source
would it happen when rx co is put in charge of distressed company or would they already have appointed a rx banker at that point
Depends, if the firm's initial mandate is operational restructuring, cash management, or stakeholder coordination. In those cases, if a capital or strategic transaction becomes necessary (e.g., DIP financing, liability management, or a 363 sale), the RX consultant may then help the company vet or evaluate a shortlist of RX banks, especially if the company isn't already working with one. But, sometimes, by the time a restructuring advisor (consulting firm) is formally engaged especially when they're put in charge of a distressed situation, there's often already been some degree of banker involvement, even if informal. This could be because the company, sponsors, or lenders have anticipated a need for capital structure advice, or have an existing relationship with an RX bank they trust.
To sum it up tho, if the RX consultant is in early and there’s no bank yet, they may play an advisory or vetting role, but they’re still not usually the originating source for the banker appointment. It’s more influence than authority.
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