BNP Paribas Leveraged Finance SuperDay

I had an interview last week friday for the regular coverage IB team. Same format as yours and just got asked a bunch of "Tell me about a time when.." questions. My technical interviewer only asked me one question as well on how to link the 3 statements. I am assuming leveraged finance would be more technical however.

Hmmm i interviewed a while ago for this team (received offer), I dont remember much as only one portion of my interview was by leverage finance. I remembered receiving a bunch of accounting questions regarding debt, considerations regarding taking on debt/lending, and some other common basic ones?(?).

hi! I received the interview from 2021 summer internship BNP leveraged finance team. Could you share a little bit about the interview questions? thanks a lot!!

happy to help on 1) Technical - w/ how to prep for Lev Fin / Loan Capital Markets interviews, from basic to advanced - more-so on the lev fin capital markets technical side tho (similar thread on JPM going on right now)

@mk21 I appreciate the kind words! I love making a big impact!

hey guys - to help further, please copy n paste the job description so I can better understand the specific firms role and responsibilities. then we will go from there

1. Technical (market knowledge) -would be helpful to know about this latest market development: Fed buying corporate bonds - see below

Tech, insurance, energy among top sectors in Fed bond buying

The Federal Reserve released data on its earliest purchases of corporate bonds, giving the market its first glimpse into the scope of the central bank's new assets.

The central bank bought $428.9 million in corporate debt over the first two days of its new bond-buying efforts, according to a June 28 data release on trades at the Fed's Secondary Market Corporate Credit Facility. The Fed released the data as part of its monthly reports to Congress on its emergency lending programs.

The Fed has been purchasing exchange-traded funds tied to the corporate bond market through the SMCCF since May 12, but it began buying specific bonds on June 16. The Fed's ETF purchases dwarf its new bond holdings, with $5.29 billion of bond ETFs purchased from May 19 to June 17, but Fed Chairman Jerome Powell has said the Fed intends to gradually move away from ETFs and toward individual bonds.

The Fed's purchasing of individual corporate bonds on the secondary market could help support new issuance, and it does have an ability to expand SMCCF activity. In a June 29 report, Oxford Economics Chief U.S. Financial Economist Kathy Bostjancic noted that the disclosed purchases are far below the total potential of $250 billion the Fed could buy in the secondary market.

So far, the bond purchases span most sectors of the U.S. economy, with the exception of the banking sector, which was excluded from the facility. The Fed was most active in the tech, insurance, consumer, energy and utilities sectors. It executed three purchases each of AT&T Inc., Anthem Inc. and UnitedHealth Group Inc.'s debt, and bought bonds issued by Comcast Corp., Microsoft Corp., International Business Machines Corp. and Walmart Inc., among other companies, twice each.

By purchase amount, AT&T and UnitedHealth were the central bank's largest positions, at $16.5 million each. All told, the Fed bought 86 companies' debt.

The Fed's bond purchases so far have been limited to companies that compose a broad market index it created to guide its bond buying activity. The index includes 794 companies with investment-grade debt as of March 22, allowing some "fallen angels" — companies that previously had high-rated debt but since fell into high-yield or "junk" status — to be included. The Fed's index is intended to generally represent the overall diversified universe of secondary market bonds with investment grade ratings as of March 22, Bostjancic said in the report.

In terms of its bond holdings' credit ratings, the Fed appears to have deviated slightly from the index's composition, according to the data release. The bond portfolio as of June 16 had 48.07% in AAA, AA or A rated notes, higher than the 42.43% allocated toward that rating range under the index. Bonds rated BBB, still an investment grade but riskier than the A class, represented 48.31% of the portfolio compared with 54.77% of the index. And high-yield bonds, those rated BB, made up 3.62% of the portfolio but only 2.8% of the index.

With the secondary market facility up and running, the Fed is also turning its attention to buying bonds directly from issuers. This program, the Primary Market Corporate Credit Facility, launched June 29. But the prospects for usage of this facility are dim, analysts believe. The PMCCF entails a 100 basis point fee, and issuers must be certified by the Fed before their bonds are eligible for purchase.

"We have long suggested that the certification process, both due to the administrative burden and the potential for stigma, are likely to render takeup extremely light" in the primary facility, BMO Capital Markets Director Daniel Krieter wrote on June 30. The surcharge on top of market rates could also contribute to the facility going "largely unused," he added.

Energy and utility bonds Through June 16, Fed purchased bonds with a par value of $37 million on the secondary market in the energy and utilities sectors. This includes $17.5 million in energy bonds and $19.5 million in utilities bonds.

In the oil and gas sector, the Fed has so far bought bonds issued by integrated supermajors like Exxon Mobil Corp. and Chevron Corp., as well as independent producer Diamondback Energy Inc. and pipeline company Energy Transfer LP. The list of companies eligible for the program includes all parts of the industry, including refining and oilfield services.

Among large-cap utilities, the Fed bought bonds from subsidiaries of Duke Energy Corp., NextEra Energy Inc., Dominion Energy Inc., FirstEnergy Corp., Southern Co., Exelon Corp., DTE Energy Co., Eversource Energy and Edison International.

2Q20 market update

my own mini summary

1) loans - down / COVID 2) bonds - up / Fed - launches Corp Bond buying program 3) M&A deals a) T Elevator (tough to spell) b) T-Mobile (Sprint) c) Eldorado Resorts (Caesar’s Entertainment Corp)

U.S. leveraged loan issuance cratered dramatically over the past three months — the first full quarter to register the upheaval caused by the coronavirus pandemic — though there were signs of improved activity as July approached. Total institutional loan volume — the type of debt bought by collateralized loan obligations and retail investors, as opposed to banks — clocked in at a four-year low of $43.7 billion in the second quarter (as of June 25), according to LCD. As unimpressive as that number is, especially compared to the soaring, Fed-fueled frenzy in the U.S. high-yield bond segment, it would have been worse were it not for a resurgence in June due to optimism over reopening of the economy. Indeed, new-issue loan volume in June alone accounts for 57% of total activity in the quarter, and it was the second-busiest month of 2020, behind a robust January.

As with the broader economy, the onset of the pandemic abruptly halted loan issuance. Issuance by non-investment-grade U.S. borrowers in the second quarter plunged 51% compared to the first three months of the year, and was down 38% from the second quarter of 2019, according to LCD. More broadly, due to a gangbusters pre-pandemic start to the year, the $133 billion of U.S. institutional loan issuance in the first half is down only 9% year over year. As noted, leveraged loan issuance badly lagged the sizzling bond markets in the second quarter. Federal Reserve programs designed to add liquidity to the markets ignited the investment-grade and high-yield bond asset classes, with issuance records toppled along the way. High-grade volume broke a monthly record in April, at $276 billion, and high-yield supply surged to its own record in June, hitting $52.7 billion (again, as of June 25).

In comparison to loans, high-yield loans also benefited from supply/demand dynamics, as cash inflows into retail funds were massive in the second quarter, netting $40.5 billion through June 24, according to Lipper. In contrast, outflows from loan funds and exchange-traded funds continued, what with less-forceful backing from the Fed and what looks to be a non-rising rate environment for the medium term. However, loan outflows have eased noticeably from the hemorrhaging in March.

Moreover, origination of CLOs, the loan market's primary source of demand, was snarled upon the onset of the crisis. However, CLO issuance has been consistently increasing month over month, helping to buoy overall demand in the asset class. In particular, managers have found ways to take bank warehouses that were already in place before COVID-19 and launch them into fully fledged deals in May and June, with increasing success. Warehousing is a period where CLO managers purchase loans to be used as collateral in a full-fledged CLO vehicle. To some extent, the appreciation of loan prices has helped boost CLO issuance, as manager portfolios appear less distressed to CLO debt investors now than they might have at the end of what was a dismal first quarter for the loan market.

Additionally, CLO managers are reducing leverage, and in some cases retaining entire tranches of debt at the bottom of the CLO's capital stack, as to de-risk deals and obtain lower liability costs. But while those costs have started to compress slightly, even seasoned, trusted managers are paying much more to borrow from debt investors than they were just three months ago, a roadblock that likely will need to be overcome before issuance is to recover fully.

Against that backdrop, the high-yield segment, clearly, became the market of choice for speculative-grade borrowers, with quarterly issuance in that asset class hitting $133 billion through June 25, easily the busiest quarter on record, and three times what was mustered in the loan market over the same period.

The high-yield frenzy has launched a fundamental shift in the capital markets not seen in 10 years. Looking at all leveraged finance transactions tracked by LCD, only 48% of speculative-grade borrowers so far in 2020 raised all of their financing in the loan market, based on count, down from a 66% average in the prior five years. The first-lien, loan-only portion of leveraged finance is 44%, a 10-year low, trailing the bond-only share of 49%, a 10-year high.

By itself, secured high-yield bond issuance ballooned to $52.3 billion in the second quarter, 75% higher than the prior quarterly peak, logged four years ago ($30 billion in second quarter 2016). It was the first time since the fourth quarter of 2009 that secured high-yield volume outpaced loan issuance in a quarter.

As the loan market foundered, issuers looking to shore up cash positions amid the pandemic uncertainty tapped that fixed-rate demand: The share of the total high-yield volume for general corporate purposes was a whopping $44.8 billion in the second quarter, more than three times higher than the prior quarterly record, and 34% of the quarter's total issuance. To that point, bond-for-loan takeout activity has surged this year to its busiest level since 2013, according to LCD. That scramble for liquidity has also breathed some life into the primary loan market, following the initial economic shock from COVID-19, as small incremental loans were secured in April. These initial forays, from issuers in sectors particularly battered by the crisis, came with juicy double-digit yields and lender-friendly bells and whistles, including enhanced call protection. Gradual improvement of the loan secondary market during the spring opened the window for M&A-related loan commitments signed before the pandemic, propping up volume heading into quarter-end. Even with sizable deals, such as Thyssenkrupp Elevator and T-Mobile, which cracked open the M&A flow in April, leveraged buyout and M&A volume was at an eight-year low in the second quarter, at $23.3 billion.

Of course, some M&A supply was siphoned into the bond market. The merger of Eldorado Resorts Inc. with Caesars Entertainment Corp. was financed largely with high yield; there was $6.2 billion of secured notes and just $1.8 billion from institutional term debt. As arrangers rolled out these deals, the M&A pipeline thinned, and there has been little to take its place. The institutional forward calendar of M&A loans, topping $43 billion in late January, dwindled to roughly $12 billion by the end of June.

The loan secondary has rebounded alongside a broad array of risk assets amid hopes of a coronavirus vaccine and the gradual reopening of economic activity, though volatility remains high, relatively speaking. After plunging 12.37% in March — the second-worst decline in the 23-year history of the S&P/LSTA Leveraged Loan Index — the year-to-date loss for the asset class had narrowed to 4.56% through June 29. This run-up was tempered late in June as COVID-19 cases spiked in several states, but the average bid price as of June 25 was 90.38, roughly 14 points higher than its 2020 low point of 76.23 on March 23. As a result, the discounted spread to maturity of outstanding first-lien loans narrowed from post-coronavirus highs, as tracked by the S&P/LSTA Leveraged Loan Index. The average STM of issuers rated B+ or B narrowed to L+463 by June 25, from L+739 in March, while BB–/BB issuers had an average STM of L+324, down from L+458 in March. With that said, both cohorts are roughly 70 basis points wider than their 2019 average.

As the new-issue loan market reopened, spreads on institutional loans averaged in the 425 bps area for both single-B and double-B issuers, underscoring that, to at least some degree, the market was in price-discovery mode during the month. This is understandable, given the current state of affairs, and what with credits from hard-hit sectors eyeing pricey liquidity loans. And the sample size is relatively small, with roughly a dozen deals in each rating category. Examples of disparate pricings here include JetBlue Airways Corp. and Apergy, double-B rated issuers (JetBlue is split) that paid 525 and 500 bps over London interbank offered rate, respectively, while single-B names PQ Corp. and Ultimate Fighting Championship Ltd. paid 300 and 325 over. For the record, B/B+ spreads averaged L+425 as of June 25 and BB/BB– spreads were at L+422.

That said, all-in spreads, factoring in original-issue discount and the Libor floor benefit, were at their highest in at least eight years. At 627 bps at the end of May, the single-B measure is 130 bps higher than at the end of the first quarter and 284 bps higher than on Jan. 31, a reading of 342 bps that was the lowest since the global financial crisis. Double-B spreads hit a post-crisis high of 609 bps in May, a whopping 396 bps higher than in January.

Up-front fee contribution to all-in pricing was significant, averaging around 118 bps as of May (amortized over three years), a record high. That average incorporates M&A deals priced at steep discounts as arrangers moved them off the books, especially early on in the reopening of the market. But by and large new issues were offering deeper original issue discounts.

Does anyone know the timeline for the apps?

1. Technical - basic concepts - would be helpful to know (in addition to understanding the role / responsibilities) (this is a partial copy n paste from this concept quiz I made myself. this is old tho. gives u some good stuff to think about tho)

1) syndicated vs Bilateral loan 2) Revolver vs Term Loan vs Bridge Loan 3) Term Loan A Vs. Term Loan B - table Lender/Investor Tenor Pricing Amort Covenants Leverage Ratings range

4) Term Loan vs Bonds - table (same as above) 5) middle market vs Large corporate - more below 6) leveraged lending guidelines (SNC) - a couple of the main rules/guidelines 7) arrangement fee % for underwriting vs best efforts - on average

8) Middle Market vs. Large Corporate deals such as LBO, etc) – what are some of the main differences in structure, pricing, covenants, amount of due diligence, baskets, etc

RC 1L TLB 2L TLB – tenor in # of years typically

TLA vs TLB – structural differences and investors

Purpose of transactions – refinancing, repricing, dividend/recap, - what are some common themes – and positives and negatives from the standpoint of 1) borrower, 2) investor

Internal deal approval process – credit risk, business risk, and syndication risk – explain all 3 and what these internal memos or committees outline

Summarize recent trends unitranche lending , direct lending vs syndicated, non-bank arrangers and market share

What is a hung deal?

BNP left lead middle market deal is in market right now. could be a hairy deal / tough sell - as pricing is pretty high L+650

Olde Thompson (Kainos Capital) Purpose: M&A Industry: Food & Bev? (spices) Ratings: NR/NR

RC $40 1L TLB $210 / 6yr / L+650 leverage covenant (not cov lite)

left lead BNP right leads Capital One / Rabobank

Pricing is imminent for a $230 million first-lien term loan for Olde Thompson. BNP Paribas is leading the deal, and Capital One and Rabobank are joint lead arrangers. The six-year TLB will have a spread of L+650, but other pricing terms are not yet finalized, sources note. The unrated loan has a leverage covenant and includes 12 months of 101 soft call protection. Financing also includes a $40 million revolver. Proceeds will be used to finance an acquisition. Olde Thompson, backed by Kainos Capital, is a provider of branded and private-label spices, including peppers, salts, turmeric, and assorted value- added seasoning blends and rubs, as well as related products.

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