Distressed Debt Analyst opportunities

Hi,

I might have an opportunity to go to a distressed debt HF but have many questions on this as very unfamiliar w debt investing (I come from a traditional BB IBD analyst background)

  • Do you still look at the industry? Try to anticipate trends? Do some qualitative analysis, read market / broker reports? Create operating models? Or is it only looking at BS / CF / legal analysis? I want to go to the buy side because i definitely have an investor mentality over selling some BS to clients but i want my ideas to come from a mix of financial and "soft" analysis (like you do in PE or value HF)
  • I feel there is a lot of legal stuff involved: is it somehow cool / manageable for someone who doesnt feel v interested in this?
  • Is it possible / easy to go from this to PE or a value HF (compared to staying in M&A) if i don't like it?
  • Does it pigeonhole you?

thanks!

 
Best Response

Are you in NY or Europe? I'm trying to land a distressed debt analyst job in London.

Answer to your question depends on whether you are buying distressed bonds or weird illiquid assets. Distressed debt roughly falls into those two buckets - corporate publics, and 'other'. I interned for a HF in London last summer and we had two desks, one for each, roughly the same size.

Corporate publics, you do all the traditional modeling, industry, etc. 'Other' - you might be buying bundles of airplane loans, securitizations, etc. - so the work is extremely varied. I've only worked on corporates so I can't really speak for what they others do, but my impression is you make alot of bids for assets and try to get things cheaply, like non-performing loans that banks are selling, or real estate securitizations, etc. It's a bit more frustrating because you can't just buy and sell these things by calling up a desk, deals can also get busted, and further valuation can be really hard because there's no market for some of these things.

Hope that helps, good luck. Or if you are in London, let me know so I can stop helping you get the jobs I want...

if you like it then you shoulda put a banana on it
 

depends what the assets are -- but you definitely have to have a clear valuation on the asset in order to properly value the debt securities (in order to know how much you'd be entitled to in bankruptcy / liquidation -- the downside case, for example).

I'd say that it's probably harder to get out of distressed -- because it's decidedly gloomy, but distressed is an excellent space in which to learn and one in which, at least I think, there will be a lot of interesting opportunities in the next couple years. PM me if you have more questions.

 

Legal work is a huge part of the investing style and there's no two ways about it. That said you do need to do a lot of industry research in order to be informed about liquidity needs, valuation issues, trends/outlook for the business, etc. A lot of distressed situations are created by short-term storms in otherwise long-term healthy businesses. We also definitely build models. On the "soft" side, the straight-up negotiation/battle of wills between creditor classes/management/etc is, to me at least, fascinating.

Distressed does pigeonhole you somewhat because it's a very specific subcategory of investing, but if you're from a legit distressed fund you should be viable for any credit-oriented strategy.

In my experience large value hedge funds have people who are either fully or partially focused on distressed opportunities.

I know people who've gone from traditional distressed-credit backgrounds to PE firms, especially if you're at a shop that has a mid-market/loan-to-own emphasis.

There have been many great comebacks throughout history. Jesus was dead but then came back as an all-powerful God-Zombie.
 

Thanks everyone! Very helpful

To give a little of background, i'm working in London but i'm from Southern Europe so basically it seems that right now in my situation, if you want to go to the buy side and earn some £££, it is much easier to go to distressed debt than to traditional upper mid cap PE...Especially that i would like to use my language skills and culture and i don't see myself doing UK midmarket deals as an investor... The thing is that i've always wanted to do PE (maybe due to the lack of exposure to the debt side of investing and to the HF world) and that i don't know shit about distressed except for 1-2 restructuring pitches.... I'm reading the distressed debt analysis book right now, which seems fairly comprehensive, will come back with questions!

 
Average Rainmaker:
Thanks everyone! Very helpful

To give a little of background, i'm working in London but i'm from Southern Europe so basically it seems that right now in my situation, if you want to go to the buy side and earn some £££, it is much easier to go to distressed debt than to traditional upper mid cap PE...Especially that i would like to use my language skills and culture and i don't see myself doing UK midmarket deals as an investor... The thing is that i've always wanted to do PE (maybe due to the lack of exposure to the debt side of investing and to the HF world) and that i don't know shit about distressed except for 1-2 restructuring pitches.... I'm reading the distressed debt analysis book right now, which seems fairly comprehensive, will come back with questions!

If you've got French or German or Italian, and a work permit, you're in extremely high demand in London right now. Realize that due to the crisis we're sitting in perhaps the best distressed debt buying opportunity in history. I say at least consider letting PE go.

And yes, I'm helping you compete for the London jobs, but I've got no work permit or Euro language - so there are plenty of jobs you can apply for that I simply cannot, even with years of RX experience and an internship at a distressed credit HF in London. Wish you best of luck and let us know what you decide. The London distressed community is pretty tight so we might cross paths at some point.

Also read Margin of Safety (Klarman) if you have not yet - you can find the PDF online.

if you like it then you shoulda put a banana on it
 

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if you like it then you shoulda put a banana on it

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