Difference between Leveraged Finance and DCM?

metalasian's picture
Rank: Baboon | banana points 131

Can somebody please explain to me the difference between Leveraged Finance and Dept Capital Markets? I'm under the impression that DCM involves debt origination/syndication, but what then is LevFin?

According to WSO's definition, LevFin is often equated to a firm's Financial Sponsors group.

However - after a BAML presentation, the firm's product groups involve DCM, LevFin, Financial Sponsors AND Private Equity? Can somebody please clear up the difference between DCm and LevFin, and also sponsors and PE? I'd really appreciate it.

Debt Capital Markets vs. Lev Fin

It is important to note that leveraged finance typically sits within the debt capital markets group at a bank - however, it is considered to be more like traditional investment banking groups than capital markets groups when considering work and exits opps.

You can see how leveraged finance fits into the bank structure below.


Source: https://www.slideshare.net/Human_WSO/unofficial-gu...

Our users explained that DCM typically works with high grade corporate debt and leveraged finance works with high yield riskier debt instruments such as loans. DCM is more of a flow business and Lev Fin requires more analysis.

User @skype offered a detailed explanation of the differences between the divisions:

skype:

DCM generally concerns itself with high grade debt origination. LevFin, unlike DCM, works on high yield offerings. There the credit rating of the issuer is the main differentiator.

High grade debt offerings are more "vanilla" than their high yield counterparts. LevFin desks sometimes do their own modeling, since investors are concerned over the worthiness of the firm and the investor base for LevFin products are include hedge funds, etc. DCM investors are going to be the large asset management firms.

LevFin and DCM are both product groups.

Financial Sponsors is a coverage group. They cover PE &hedge funds -- LevFin is one of the products they offer to their clients to help raise capital.

User @MezzKet shared:

MezzKet - Private Equity Associate:

DCM purely syndicates debt that has been structured by industry groups while Lev Fin is responsible for not so much high yield issuance as it is leveraged loans which can either be held on the books, syndicated (to clos, mutual funds, hedge funds etc.), or a little bit of both. As such, credit analysis is necessary and it requires memos submitted to committees for approval to take on the risk of the loan... DCM just sells debt to the market that has been prepared by the advisors...

DCM Finance Exit Opps

Generally speaking, DCM does not offer as attractive of exit opportunities as traditional investment banking as the skills you learn in issuing high quality loans to corporates does not transfer to what are considered the "attractive exit opps" from banking such as private equity. If a worker in DCM is interested in those exit opportunities it is common for them to lateral to classic banking and then move to a traditional exit opp.

Read More About DCM on WSO

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Comments (3)

Best Response
Dec 3, 2009

DCM generally concerns itself with high grade debt origination. LevFin, unlike DCM, works on high yield offerings. There the credit rating of the issuer is the main differentiator.

High grade debt offerings are more "vanilla" than their high yield counterparts. LevFin desks sometimes do their own modeling, since investors are concerned over the worthiness of the firm and the investor base for LevFin products are include hedge funds, etc. DCM investors are going to be the large asset management firms.

LevFin and DCM are both product groups.

Financial Sponsors is a coverage group. They cover PE &hedge funds -- LevFin is one of the products they offer to their clients to help raise capital.

    • 4
Dec 4, 2009

I hear exit ops from DCM aren't that great.....what about exit ops from financial sponsors? How are they and what do people generally do after a couple years of FS

Dec 4, 2009
Comment
    • 2