Is anyone here a Credit Analyst at a PIMCO-esque shop? IWTL how to properly model corporate debt.

billystern's picture
Rank: Chimp | 14

Bit of context: I'm in fixed income manager research and I've got a decent-ish grasp of the markets but where I want to build knowledge is within individual security analysis (plan is to eventually go buy-side as an analyst)

I'm curious as to what models are used to value a credit, particularly fair value, required yield, probability of default etc. I know there is a ton of information out there on ER although I'm skeptical as to whether much of this applies to FI in terms of the modelling.

I've got a few books on FI but an overview of the analytical process from someone actually in the game would be ideal.

Comments (3)

Mar 13, 2019

Hi billystern, check out these threads:

  • How do I grow my career in the fixed income space, especially in going into fixed income research? acquire at this point in my career, in order to become a fixed income research analyst? Related to the ... What's the general career path options for fixed income research analyst like? Is the ultimate goal ... different firms have different definition of what fixed income
  • Prudential Capital Group Investment Analyst: private fixed income investment management they hold to maturity? Would Fixed income shops like Western Asset, PIMCO like that you have that ... support- Portfolio and credit monitoring- Prepare marketing materials interview fixed income ... do "private fixed income investment management"...private placements..mez...etc, all things ...
  • Credit Suisse Fixed Income Desks I received an offer for a Summer Analyst with Credit Suisse Fixed Income. The program is ... CS is generally regarded to have one of if not the best High Yield/Distressed Debt trading desks on ... fixed income FI Desks ...
  • What do CRE analysts/CMBS analysts really do at fixed income shops? I have seen many postings for CRE analyst/CMBS analyst at buy-side fixed income shops recently ... fixed income shops hiring people for asset-level underwriting for CMBS investment? I thought that CMBS ... analyst at places like PIMCO, Doubleline, or TWC tend to spend the majority of the time
  • Credit/Fixed Income Research Associate I'm looking to learn a bit more about sell side credit/Fixed Income research and how it ... now. Is the sentiment the same for FI research? I would assume exit opps would be credit based hedge ... compares to Equity research in terms of Analyst-Associate structure, hours, comp, and exit opps? ...
  • Buyside Viewpoint from a Fixed Income PM to myself. This quantitative modeling is one of the most boring things I've ever done, I also ... at one of those buy-side firms who found my research useful asked me if I'd like to be an ... investment strategist on their fixed income desk. They wanted someone to look at the asset/
  • Prudential Fixed Income Investment Portfolio Analyst The Portfolio Analyst will assimilate to a mandate specific team such as IG Corporates, Emerging ... benchmarks for prospective clients. The Portfolio Analyst is an expert on the firm's proprietary ... suitability. Qualifications: Requirements * Three to seven years experience in Fixed Income Investments and ...
  • More suggestions...

I hope those threads give you a bit more insight.

Mar 19, 2019

A list of things that a credit analyst may look at: leverage metrics like debt/EBITDA and free cash flow/debt, enterprise value multiples if it is a public company (or public company or private transactions comps if it is a private company), free cash flow conversion, maturity profile (any liquidity problems?), credit ratings, and relative value (yield/spread vs. treasuries, dollar price, expected recovery if the company defaults on the debt).

Some of these are more relevant for different strategies and types of credits. For an investment grade bond investor, you're more concerned about spread than dollar price for the most part and liquidity/capital markets access, let alone expected recoveries in the event of a default, are not as much of a concern. For high yield/distressed investors, dollar price matters more, as do expected recoveries. Non-investment grade capital structures are generally more complex and analysis of credit agreements/covenants is more important.

For relative value, it ultimately comes down to what you're willing to get paid to lend to a certain company and relative value is evaluating the risks of one company against another. Industry comps are great but not always perfect, so I like to think about what trades at a similar spread, and compare risks. I might see two companies with 10 year bonds trading at 200 basis points over treasuries. Both are 5x levered after recent acquisitions. One is a food company that sells frozen dinners. The other is an airplane parts manufacturer that has chunky cash flows but is on a couple high growth platforms. Maybe the equity story is better for the airplane parts company with its growth opportunities, but for a bond investor who is worried about downside risk, the more stable frozen food company might be a better risk to underwrite at 200bps of spread.

Hopefully this is helpful. PM me if you'd like to know more on specifics.

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Apr 2, 2019
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