Lev Fin Outlook & Best Groups 2020

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Outlook of Lev Fin for 2020-2021? What are the top groups on the street that actually get to model? BAML is well-regarded as the best, but what are 5-6 other solid groups?

Comments (80)

 
  • Prospect in IB-M&A
May 23, 2020 - 10:08am

JPM

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May 23, 2020 - 10:33am

JPM, BAML, CS. I believe JPM, GS and MS levFin groups are more capital markets oriented where as baml and CS do hold the pen on their own models. While I think it’s great to have the modeling experience, I know of analysts from the more capital markets oriented LevFin groups who have places to great funds. but as far as I know, outside of jpm, both baml and CS have strong LF businesses.

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  • Prospect in IB-M&A
May 23, 2020 - 7:15pm

I think I'd be pretty interested in a credit focused role such as the Credit arm of a MF. Does that change whether capital markets vs. modeling heavy groups are better for me?

Also, overall, would you pick JPM > BAML given there may be a bit more optionality attached to (what I perceive as, correct me if I'm wrong:) the better overall reputation especially outside of finance?

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  • Prospect in IB-M&A
May 23, 2020 - 7:21pm

Any idea as to how easy it is to lateral from SA at BAML in IB to FT at the bank in LevFin? or would you need to work at least a year in IB first before being able to move over?

 
  • Intern in IB - ECM
May 23, 2020 - 11:57pm

that guy who commented is right, Lev Fin is IB. but if you are placed in any group at BofA you can potentially switch groups at the end of the summer. you have the opportunity to, however, most people don’t becUse of course you have the best chance of getting an offer within your summer group

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  • Prospect in Other
May 23, 2020 - 9:55pm

insight on Jefferies? sounds like they do some pretty interesting work

also, do they direct hire (no generalist) did as/an

 
  • Incoming Analyst in IB - Ind
May 25, 2020 - 2:51pm

What do you mean that they structure extremely leveraged deals?

Hello Wall Street, It’s Yours Truly. If you don’t see it here, I didn’t say it. — Former Buffalo Bills Tailback 1973 NFL MVP 1968 Heisman Trophy Winner 5x All Pro
 
May 24, 2020 - 11:04am

I might be a little bit off here with the terminology but all leverage loans and US banks are regulated by the Fed. There are certain guidelines to doing deals like not leveraging above 6x etc. Jefferies doesn’t fall in the category that gets regulated. so they have been able to help sponsors with really aggressive deals and have been able to climb up the league tables in 2017 and 2018. I think they were top 5 from a league table perspective in both bond and LL. Jefferies LF is well known on the street...

 
May 25, 2020 - 8:08pm

correct. explained well w/o knowing the specific terminology.
and it’s the result of Shared National Committee’s (SNC) Leveraged Lending Guidance in 2013.

Non-bank arranger = jefferies
as a result, non bank arrangers gained share. then even PE firms created underwriting arms - KKR Cerberus Apollo etc - like I can UW and make a 2.0-2.25% fee on 1L term loan and 2.5-2.75% on 2L? sure why not. then came the rise of Direct Lenders etc etc
happy to provide some publications and whatnot on these topics

 
Most Helpful
May 24, 2020 - 12:51am

Compehensive list of BB LevFin Groups that model and that do not:

LevFin Groups that DO NOT model: GS, MS, JPM, Citi, Barclays
LevFin Groups that DO model: BAML, CS, DB, UBS

Some misc. notes:
- BAML LevFin modeling is mostly cash flow modeling. The coverage group will build out the operating model (revenue / expense assumptions) and the LevFin group will take those inputs and run it through their debt repayment model, tweaking the assumptions (mainly leverage and pricing) and other cash flow related items (taxes, capex, working capital etc). While the LevFin person does still need to understand the operating model assumptions in order to stress test it, just note that the actual operating build (which I would say is the key part to actually understanding how a company runs) is done by the coverage / M&A group, not LevFin.
- CS splits their LevFin team into 2 groups - Financial Sponsors and LFO&R. Sponsors does all work related to private equity firms (LBOs, refis for portfolio companies, div recaps etc) whereas LFO&R only does work for standalone / non-sponsor backed corporates (mainly refis, repricings, first time new issuances). From what I know, LFO&R splits the model work similar to BAML (coverage holds pen on operating model, levfin holds pen on debt repayment model) whereas Fin Sponsors runs the entire model solo.
- UBS combines both their Fin Sponsors & LevFin group into one. Holds pen on entire model, and they are focused almost exclusively on sponsor-backed deals (they actively avoid regular corporate deals that - while great for HY league table credit - are balance sheet heavy). In my opinion one of the more underrated groups out there, despite the WSO population generally looking down on anything UBS-affiliated for some reason.
- The non-modeling capital markets groups literally do not touch the model at all. The closest you will get to modeling in those groups is building a sources & uses and pro forma cap - the whole model component will be run by your M&A / Coverage groups. Your work at the analyst level will mainly consist of building cap tables, spreading debt comps (pricing / leverage), updating market update slides, and if you're really good, covenant comps, commitment paper negotiations, funds flows (for lead left deals). Note that because of the lack of modeling, the non-model LevFin groups generally have better hours compared to their respective coverage groups.

Hope this helps

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May 24, 2020 - 1:27am

Very varied so it's hard to say, but from what I've seen:

Some pick up modeling on their own, study the model on the deals they've worked on (I've seen some ambitious analysts call up their coverage counterparts who actually built the model and ask them to walk them through) then exit to primarily credit funds, and some MM PE (haven't seen this too often from non-modeling LevFin groups in my opinion).

Some internally transfer to a coverage/M&A group after 2 years, then recruit for typical buy-side roles (most common route if they're targeting PE).

In my personal experience I've seen most of them stay on as A2A promotes as it's a fantastic gig if you think about it. Given no modeling, your hours are a lot more manageable, you focus strictly on executing, and despite it technically being a capital markets role, you still get paid at the same level as the M&A guys.

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  • Analyst 2 in IB-M&A
May 24, 2020 - 1:11am

Comment about CS is slightly off.

CS breaks it into 3 groups:

  • LFO&R: see comments above. Also do a lot of buyside m&a financings and general structural advisory. The origination part is important to. They have their own book of business and go out and win deals. It’s not like some LevFin groups (JPM) where LevFin only works on deals that they get introduced to via another group that sourced it. On the restructuring end — DIP/rescue financings and some advisory (when permitted)

  • LevFin capital markets: Not seen as a traditional banking group. As the name implies, the handle a lot of the capital markets support work on LFO&R deals. This group doesn’t model or originate and they have fantastic hours lol

  • Financial sponsors: See comments above. Really strong group and the culture is great. Only criticism is that a lot of the processes worked on in this group are very repetitive/similar, so some say you leave without a very well-rounded skill set. Debatable.

General info:
- Great deal flow across the board because LevFin is the core of CS IB
- FSG and LFO&R have the best PE placement of any groups at the bank

 
  • Analyst 2 in IB - DCM
May 24, 2020 - 11:14am

I think the comment for DB is slightly off. My roommate works at DB LF and here’s what he had to say. the team is split into -
1. Capital markets - Team is small and lean . Mainly MDs and Ds who have relationships with AMs, HFs etc. No modeling at all.
2. Sponsors - they only work on sponsor related work. Hold pen on LBOs mainly. Other Refis, ECM, etc work is split between sponsors and coverage
3. Lev Fin- have relationships with the company. Modeling is very rare ie in 2 years you have model less than 5-10 times. usually for non-sponsor deals, model is held by Coverage.

 
May 24, 2020 - 11:23pm

Not necessarily true, at least not currently. GS lev fin groups, on a pod-by-pod basis, are beginning to hold the pen on modeling for LBO processes (in some cases, running deals from the top down without an industry coverage team...). Definitely can be more of capital markets role depending on who the seniors are, but can be a fulsome experience for those who get placed onto the right team under strong senior direction.

 
May 24, 2020 - 1:24am

CrSu, WUSTL and BCLYS are decent. Ask others though before you make the decision.

Will update my computer soon and leave Incognito so I will disappear forever. How did I achieve Neanderthal by trolling? Some people are after me so need to close account for safety.
 
May 24, 2020 - 9:54am

Does anyone know the difference between JPM’s Lev Fin group within IB and Lev Fin within CCBSI?

One seems to be lev fin related to IB deals compared to commercial banking deals. Do the exits differ?

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  • Analyst 3+ in IB - Ind
May 24, 2020 - 10:10am

I used to work at JPM Lev Fin, can confirm you do not touch any of the modelling / corporate finance aspects. It’s very much a capital markets role pricing bonds, reviewing term sheets and assessing optimal capital structures (which involves a tiny bit of modelling).

Still the best LevFin group on the street with great bonuses but terrible for the financial modelling learning. Although you do learn an incredible amount regarding the debt market.

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  • Analyst 3+ in IB - Ind
May 24, 2020 - 10:53am

No, exit ops are great. I was constantly being headhunted for top fund including megafunds. Most recruiters don’t understand the differences between groups, they just see JPM LevFin and think you’re the perfect candidate crunching LBOs daily (even tho you don’t). You’ll get the opportunities it’s just down to you to practise in your own time and self learn the modelling for the case studies in the recruitment process. Regarding debt funds, within this group you build a solid understanding of the credit market and so exit ops into distressed or credit funds is also highly achievable.

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May 24, 2020 - 11:25am

I heard that levfin (esp at BAML CS and JMP) have good pe exits but am confused why considering it seems like they don't touch the operating, lbo, and normal valuation models. Can anyone shine some light on this?

Also does anyone know if levfin to distress pe is common/possible as an exit?

Thanks.

 
  • Analyst 3+ in IB - Ind
May 24, 2020 - 12:15pm

I just replied to another similar question/comment which should answer your queries - feel free to read that.

Re. CS, LevFin is mixed with the sponsors groups and so is slightly more of a relationship management team than other teams, so here is also not as good as other teams for learning modelling but you still pick up some and develop a strong understanding of the debt space so you’re fine for exits. Just prep modelling case studies on the side.

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  • Analyst 2 in IB-M&A
May 24, 2020 - 2:33pm

CS Levfin is not mixed with Sponsors. They are two completely separate groups. Both groups model extensively and are not just "relationship managers". Not sure where you got that info lol. They are some of the most technically-demanding groups in the bank. LFO&R naturally will have some more complexity given the nature of the processes they work on

 
  • Analyst 1 in IB - Gen
May 24, 2020 - 4:33pm

Analyst at one of these firms so here's my experience on it. We do touch and usually hold the pen on the LBO based on the assumptions from the operating model. The bulk of our work is usually not about valuation - and I think that most PE guys don't really care about valuation (ie pay 10x or 11x) but rather what are they key things about the business. Whilst we do not build the operating model we use it intensively to change assumptions and have different senarios (I have once basically changed all the assumptions from the industry team that had a very optimistic outlook vs our view - deal was travel related, guess what our view was the better one). This allows us to get a good grasp of the business we are working on even if we didn't do the 3 statements (and honestly if you've done it once its not that hard). We also focus a lot on all the one-offs costs/earnings and dirty to clean EBITDA that will be a key point for negociation with lenders. These skills are usually appreciated by PE funds as it includes negociating and understanding of some niche things.

I think lack exposure to M&A process stuff, Equity valuation (not really sure how its negociated, driven other than basic comps, what to look out for in a DCF, who knows maybe these guys don't care about clean EBITDA???) and merger accounting. I am not gonna lie I have no clue for all of these (aside from basic finance knowledge), the latter 2 sound quite cool and I want to developp that skillset in PE (former we deal with that frequently and I'm fine with process in general as it is needed at some point).

Final point that I will add, LevFin is the only team in a bank (excluding ECM/DCM but these have no solid exits) that can loose money as we commit capital and even sometimes hold tranches in the deals we execute. So as bankers, we not only have to advise clients but also think about the credit itself and therefore we have a view on things that will be usually more cautious, critical than your typical industry banker that just wants the deal to go through. We on the other hand want the deal to go through and be a good deal as we don't only have our reputation at stake but also $$$. Can be quite a sell to HHs to say that you are in essence already putting capital at risk.

 
May 26, 2020 - 2:28am

All your points are very correct but unfortunately you will see that it’s a lot harder than you think to exit in non-debt roles.

Modelling aside, you will notice that M&A guys end up being a lot better prepared than you just because (I) they will think differently (upside vs downside protection), (II) they have more experience looking at companies in details (in levfin you only go through the high level, that’s a reality) and (iii) they know valuation a lot better as you pointed out (and yes, valuation does matter a lot in PE.... understanding cycles, building a proper EV to EqV bridge are very important skills needed on the day to day)

There is also a reason why PE funds now hire a lot of consultants - operating knowledge / operational understanding does matter in this job and ultimately you are more likely to get some in a consulting or in a M&A / coverage role rather than in a financing one

Just want to make sure that there is no misinformation here: LevFin groups do give you great exposure and learning but they will NOT position you better for EQUITY buy side exits

 
May 24, 2020 - 3:35pm

Can’t speak to 2021, but the outlook for 2020 is pretty bleak. New issuance year to date is almost non-existent and even if things picked up immediately, there’s only about a 1 quarter window of opportunity to do deals that will generate fees within the calendar year. There’s also constraining factors on the demand side given CLO managers, which buy the vast majority of leveraged loan paper, are also under pressure given the recent onslaught of ratings downgrades that have caused them to trip various covenant/coverage tests and we have only seen the tip of the iceberg of borrowers starting to default. Will most likely be a tough year/year and a half for LevFin markets, in my opinion.

 
May 28, 2020 - 1:00pm

Better opportunities for unregulated institutions like Jefferies or KKR CapMkts, but you won't be seeing banks launching deals similar to Landry's or Revlon any time soon. HY bond market (excluding fallen angels) is acting a bit irrational from my perspective, not really sure why demand is so high outside of drinking the Fed kool-aid so we'll see how long that lasts.

 
  • Intern in _none
May 26, 2020 - 3:51am

WF LevFin, but doesn't model. Charlotte with IB pay and good bonus. You make much more adjusted for cost of living in Charlotte and its not a bad city.

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