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Oct 27, 2020 - 2:04am

Credit Fund - Interview Prep (Credit Suisse Asset Management (CSAM) - Credit Investments Group (CIG)

Hey @CoffeeBeannnnn - See my post on Bain Credit Interview thread (https://www.wallstreetoasis.com/forums/bain-capital-credit-sa-first-rou…

I can send Lev Fin / Direct Lending / Private Credit Interview Prep materials, especially with regard to the capital markets side (market updates on leveraged loans they invest in). I have a ton of CLO stuff too if necessary, but not my bread & butter as much. I'll focus this thread on non-CLO manager interview prep.

Interview Prep - Leveraged Finance Capital Markets/ Direct Lending / Private Credit 

1) Read Loan Market Updates (weekly/Q) - LCDcomps.com / LevFin Insights (LFI)

2) Loan Products (RC/TLA/1L TLB/2L TL/Unitranche) -  (get comfortable distinguishing btw typical lender - bank vs. institutional, pricing, tenor, covenants, etc.

  • -Revolver/Term Loan A (banks, less leverage, covenants, 5yr tenor, pricing is lower, amort on TLA)
    • RC / TLA pricing for BB/Ba2 company: L+150
  • -Term Loan B: 1st Lien TLB / 2nd lien TLB / Unitranche (institutional investors, more lev, possibly cov-lite, higher pricing, 1% amort - 1L/2L - no amort, etc.).
    • 1L TLB ~L+400 / 2L TLB ~L+800
  • Unitranche (1 loan of a blended rate of what would be the 1L TLB and 2L TLB pricing) - alternative to 1L/2L structure, very common in this space.
    • Unitranche ~L+650

3) Direct Lending vs. Broadly Syndicated - Execution Strategy - know the diff considerations from borrower perspective

  • certainty of funds, speed of execution, albeit at a higher price/fees most likely, deal w/ 1 lender vs. a group of lenders, etc.) - read Direct Lending primer

4) Underwriting Fees & Flex - LBO: RC / 1L TLB / 2L TL. Typical fees and flex, normal market:

  • RC/1L 2.25% (125 bps flex)
  • 2L 2.75% (150 bps flex)
  • Privately placed 2L 0.25% to 0.50% UW Fee (priv placed much more common today)

5) Credit Risks & Mitigants (Credit Strengths & Weaknesses) – familiarize yourself

  • -Ratings Reports – basically summarize this for you (create login – Moody's and S&P – get free access to "Rating Action" reports)
  • Example:  eResearch Technologies (B/B3 CFR) / Revolver $200 / 1st Lien TLB $1,155 /   Priv Placed 2L TL  $395 / EBITDA $210 / Leverage 5.5x/7.4x

Credit Strengths (Moody's)

  • 1) significant  customer concentration (albeit across a number of different clinical trials) – could also be considered a weakness (customer concentration)
  • 2) strong market position in the niche electronic based clinical outcome assessment market,
  • 3) solid growth prospects driven by favorable industry fundamentals,
  • 4) solid EBITA margins
  • 5) high revenue visibility provided by contract backlog.
  • 6) meaningful growth in the backlog in the last 6m indicates that the company has largely overcome the operating challenges
  • 7) revenue growth coupled with cost saving initiatives will drive earning expansion
  •  a) Moody's projects will reduce Debt/EBITDA to

Credit Weaknesses (Moody's)

  • 1) very high financial leverage - PF Moody's Adj. Debt/EBITDA:  7.9x
  • 2) elevated financial risk associated with private equity ownership evidenced by aggressively high initial debt levels following the proposed LBO
  • 3) aggressive track record of growth through debt-funded acquisitions.
  • 4) significant  customer concentration (albeit across a number of different clinical trials)
  • 5) risk that larger better capitalized companies could choose to pursue developing their own electronic clinical outcome assessments.
  • 6) recent revenue declines related to integration of the 4 recent acquisitions, to extend into early 2020.

Helpful links to comments I wrote on OID, All-in-yield calc, UW fees and flex, Term Loan A vs. Term Loan B. Hit me up if u want - happy to send materials / docs / primers, etc.

https://www.wallstreetoasis.com/forums/tla-vs-tlb-maturity-and-leverage#comment-2071053

https://www.wallstreetoasis.com/forums/oid-in-leveraged-loans

Sample Role - Job Posting - Responsibilities

Day-to-day involves working with the deal captains and fund founders on analytics, structuring, negotiation, execution, process management, and portfolio management. The associate is expected to be a key part of the investment team and will:

  • Assist the deal captains and founders with investment diligence and underwriting process
  • Prepare financial models for investment opportunities (DCF and securitization models)
  • Assist in the execution of deal documentation, which will include aspects of term sheet negotiation and legal document review
  • Manage and assist with transaction processes and interact with internal colleagues across legal, product control and operations
  • Assist in the preparation of investment committee memos
  • Prepare and maintain reports covering portfolio and risk management of new and existing fund investments

Credit Suisse Asset Management (CSAM) - Credit Investments Group (CIG)

With substantial scale, an extensive network, and experienced local teams in New York and London, CIG is one of the largest non-investment-grade credit managers in the US and Western Europe. The full-service group of dedicated credit professionals offers a broad suite of solutions across the risk/return spectrum to meet a variety of client needs from capital preservation to systematic income and alpha generation.

Credit Suisse Asset Management (CSAM) - Credit Investments Group (CIG) - Strategies (Senior Secured Loans and CLOs)

  • Senior Secured Loans

  • A core competency of CIG is in the long-standing, established management of senior secured loans. The team's senior investment managers leverage significant experience of investing in performing credit strategies and three members of the investment committee have managed portfolios together for 19 years. The team offers global, dollar- and euro-focused capabilities with an overriding emphasis on preservation of capital to provide diverse investment options for clients globally. Within the investment process framework, bottom-up analysis drives the selection of individual investments and a high level of diversity, with strict quality, issuer, and industry concentration criteria.
  • Credit Suisse Asset Management (CSAM) - Credit Investments Group (CIG) Collateralized Loan Obligations  (CLOs)

  • CIG is the largest US manager of CLOs1. Complementing its core competency in senior secured loans, CIG has also had a long history of investing in structured credit. Since 1998, CIG has invested in structured credit bonds, with a focus on tranches of third-party-managed CLOs. The strategy seeks to identify relative value across tranches depending on the investment guidelines and risk profile of the account by leveraging its long-standing expertise in evaluating the underlying performing and non-performing assets of each CLO, in structuring and documentation reviews, in manager due diligence, and its deep relationships in the capital markets. CIG's structured credit team is fully integrated into the broader credit platform, which allows for the seamless combination of bottom-up credit insights and top-down structuring expertise.

(edit - actually this role and the prep may be a tad different w/ the CLO component, but gives you a good start to build off)

CLO Example - Summary Report - to give you an idea of CLO Credit Strengths and weakness

Company X CLO is a typical cash-flow CLO transaction managed by Company X. The CLO is backed by a $600 million portfolio of non-investment-grade broadly syndicated loans and other assets that the manager purchases from and trades in the primary and secondary markets. In our credit analysis, we considered the attributes of the CLO's underlying assets, including the assets' average default probability, average recovery rate, diversity score, average life and average spread. The CLO will issue several classes of notes that receive quarterly interest payments and, after the reinvestment period, principal payments, in order of seniority. In addition, the CLO will issue subordinated notes that receive only residual interest and principal payments.

CLO - Credit strengths

  • (1) Predominantly first-lien senior secured loan exposure
  • (2) No long-dated assets
  • (3) Remote likelihood of OC-based event of default
  • (4) No note cancellation without payment
  • (5) Involuntary bankruptcy safeguards

CLO - Credit challenges

  • (1) Larger than typical cumulative limit on bankruptcy exchanges and exchange transactions
  • (2) Current pay asset rating requirement
  • (3) DIP rating can be used after the rating has been withdrawn
  • (4) Asset maturity amendments could extend portfolio's WAL
  • (5) Note repurchases can weaken subordination
  • (6) Senior secured loans can be subordinate to senior working capital facilities
  • (7) No objective manager standard of care
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