Hi WSO,
I'm starting at a direct lender this week. I'm on the investment team and I look at sourced potential investments and judge ability to pay based on credit worthiness of the business, value collateral and the activities the loan will be used for and then price the loan and assign basic terms prior to underwriting. We deal with small businesses so detecting fraud or money laundering is a pressing concern, too.
What can I lateral into from here? Is a special situations group or a distressed HF or distressed PE possible? Would I have to try to get into IB?
My previous job was as an analyst in an oil company. Nobody understands the downstream despite the billions there since E&P is so lucrative but downstream still made a pretty penny when oil prices fell so that got the majors attention.
Direct Lending is a solid spot to be in. Many (if not most) direct lenders recruit IB professionals. Many decent exit opps.
Direct lending definitely has a big role in the energy space (assuming you're still covering energy). You see guys like Ares, Riverstone Credit, Angelo Gordon, TPG, etc. all do direct lending. There's definitely a niche there because energy companies (especially the middle market) have a huge need for capital, and the private-credit market helps fill the void that the public equity and debt market leave.
In terms of exit opps, I think opportunities at bigger direct lending shops are feasible. For distressed debt, these firms fundamentally think differently. I think you would have to show that you can think about a debt investment in several different, more opportunistic ways, rather than just a simple rate of return based on YTM.
I think you also have to think about what interests you in the future. That would help people in giving you advice.
Thanks for the response, can you elaborate on the ways opportunitistic funds approach debt that differ from direct lenders? I picked up Distressed Debt Analysis by Moyer.
I know this is a meme at this point, but would I get any benefit from the CFA?
I am certainly no expert on this matter, but look at firms like WL Ross, Oaktree, Ares, etc. Guys that are opportunistic up and down the capital structure. Sometimes they’ll come in and purchase a huge chunk of debt in a distressed company to hopefully be the fulcrum security during a ch. 11 process and emerge as a big equity holder. They think that worse case, the assets sufficiently cover their debt value and they get repaid in full (which they sometimes view actually generates a lower return than if they were the fulcrum). Sometimes they’ll see a note of a pretty strong company “wrongly” trading at a price that they don’t think is correct. So they’ll purchase these notes at like 70-80 cents to par hoping that in a few months the price rebounds and they effectively “flipped” the investment.
I think the distressed debt space is extremely interesting and Moyer’s book is certainly a good read.
Currently interviewing with two large direct lenders. Is there a reason you are already contemplating exit ops? Do you anticipate comp being low at senior levels, or is it a lifestyle play? Thanks
Based on his post history, I'm not entirely sure OP is in direct lending. Sounds like more of a commercial/corporate lending job at a bank. Most people don't go from being an analyst at an oil company to a post-IB exit opp and then try to get out right away.
How much do you make at CIT?
Definitely not at a bank
I haven't been too exposed to all the different types of investors because I hadn't been immersed in high finance. I never did an IB stint and only had one PE internship in high school. In college (economics, loved econometrics) and a bit after, I was in tech (overrated, IMO) and afterward I went to work in oil and got the opportunity to work on some cool research, business improvement and M&A focused projects for the downstream. I have little sense of the scope of the buyside beyond what a general PE firm does and what a general HF does. So I'm contemplating exit ops in part because I don't necessarily understand what I have in front of me or what's to my sides in a meta-game sense. Sound the other guy's comment, it sounds like I jumped the shark but I've not.
sorry for bumping. any chance anyone can talk about "why direct lending" instead of "why PE?"
I can think of frequency of deals but what else?
Depends, but not really.
Most direct lending firms these days mostly lend to sponsored transactions (i.e. a PE firm wants to acquire an asset and need to apply leverage). You piggy back some/most of your knowledge and research off the work that the PE firm has already commissioned (i.e. Quality of Earnings, Industry research, etc.) and done.
I would argue you see more deals and have the opportunity to close more deals than a PE firm does as a direct lender given theoretically you have the opportunity to see many deals with many different PE firms. You also don't necessarily need to "get all the way there" to close a deal - many direct lending firms are thrown into the loop and given 2-3 weeks to put forth terms and make a decision and will end up closing the deals because they feel they have boxed in or priced most/all their primary risks with the deal and place trust in the PE firm/management team for the remaining open questions they have outstanding. The sponsored direct lending space is highly competitive.
PE vs Direct Lending are pretty different in their own regards. If you prefer direct lending over PE, one might say, "I enjoy looking at different capital structures and figuring out ways to uniquely structure a transaction, whether that be through a mezzanine structure, 1st lien stretch, unitranche, etc."
This is extremely helpful - thank you!
Feel free to PM me with specific questions on direct lending. I am an Associate in the credit arm of one of the large PE firms mentioned here.
Any interview advice or prep material would be greatly appreciated
Sure. Hit me up
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