Distressed / High Yield Credit Pitch
Hi -
Currently interviewing with a credit fund for a credit analyst position. They gave me a company, and told me to look at said company and provide a model and investment memo to the team and present my ideas over Zoom.
These are all the details I have.
so a few questions
1 - How long should my presentation be? The whole interview is 1 hour. I wanted to aim for maybe 20 minutes.
2 - How exhaustive should my investment memo be? 10 - 20 pages walking them through my whole model including screenshots? Do I put my investment thesis on the first page before I dive into the company overview, market overview, financials etc.?
3 - The company they gave me has been benefitting from COVID and has been able to increase their margins. Overall very solid business and macro outlook is constructive as well. They have 2 term loans, 1 secured bond, 3 unsecureds. Def see more relative value in the TLs and the longer-dated unsecured. Is it okay to tell them to just go long a TL and the unsecured? Or should I rather suggest going long the TL and maybe short a competitor? or short something within their own cap structure? should I present potential hedges?
4- what information regarding my proposed investment should I present? just a returns analysis with an IRR?
5 - although business is highly levered they are CF positive and generating enough cash to have sufficient liquidity over next 5 years. Should I nonetheless present them with a bankruptcy case / recovery analysis?
Any help is greatly appreciated!
1. 20-30 mins presentation sounds about right with some time for questions.
2. Length of memo depends on complexity of situation...if slides, can easily be 20 pages. If word doc, could be 10 - I can't tell you this. Has to cover all the material. Your memo/presentation should have an executive summary slide where the entire thesis can be distilled into 3-4 sentences along with a company overview
3. Would stick with trades inside 1 cap structure - maybe suggest in "future diligence" at end that another company could be used to short as a hedge etc. Unless you have a semi bearish view on the company, I'd stick to long only, and if not then it would be long a senior instrument and short a junior instrument. Honestly, keep it simple, and just pick either TL/Secured Bond or Unsecureds.
4. Investment thesis should be (concisely) - why the Company will improve/stabilize/deteriorate revenue/ebitda/cash flow along with total return and IRR over a specified time period
5. Downside case doesn't necessarily need to be bankruptcy; you should probably include recovery in both base and downside cases. If you think bankruptcy is a risk in the downside case then put it in there, but I can't tell you without seeing the situation. Every one will be different.
Let me know if any other questions
Thank you for your detailed response - appreciate it!
if I pitch a bond that matures in 2027 should I calculate the IRR if I'd hold it until maturity? or over what time frame?
You could do IRR until ~1 year before maturity (when something would typically get refi'd out), or if you have an event that would make it trade up sooner, I would include that too.
Whoa...10-20 pages...seems like major overkill...the OP should reach out to them as ask on length. Every case study I've every done or given has given a target length for the writeup (and specified if they wanted ppt vs word), typically no more than 5 pages. One they know you're likely employed and two they don't want to read that much. That doesn't mean that some places wouldn't want 10-20 pages, but I'd clarify before you do major overkill that provides no benefit.
Thanks for your input - appreciate it.
Given that I am probably the candidate with the least experience I want to over deliver.
Yea I totally get it and that's a good attitude. But similar to being in college or whatever...if a professor is expecting a 10 page paper submitting a 20 pager won't help. Personally, I think asking a question, in this case about format/desired length, shows backbone vs just making an assumption that may or may not be wrong. I'm not hiring someone because they had a longer/shorter case study its the substance and thought process and typically people interviewing don't want to read multiple long case studies. You can have an extremely solid case study in 5 pages or less, much of what is longer is just fluff. I'm not trying to talk you out of anything just trying to help you maximize the best use of your time to be the most competitive candidate.
Would structure it as follows:
1) Recommendation up front - should we buy and what is potential upside/downside
2) Summary description of company
3) capital structure
4) org chart showing where all debt sits and any ring fencing or guarantees - can get this from the offering memorandum
5) debt maturity profile so we know when refinancing takes place
6) summary P&L and cash flow projections - usually show a base case, downside case and stress case (leading to bankruptcy/restructuring)
7) recovery analysis for downside risk/discussion
8) summary term sheet of bond you would recommend buying
Hello lads,
Came across this thread and found it very useful - can anyone provide a high level 101 on recovery analysis? How do you select the route of enforcement? how do you work through value of the business assuming enforcement is unavoidable taking into account subsidiaries, JVs, and JV creditors etc?
Thanks All
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