Leveraged finance / investing in private debt markets


I have interviews coming up for a position in a private debt fund - as I have never worked in DCM/LevFin before, I am basically starting my preparation from scratch. Would anyone have any valuable insights and suggestions into how to best prepare? Any current market trends / sources to read upon this to be best prepared?

I've also seen that the Distressed Debt Analysis book has been pointed out as suggested reading - would this be a good starting point / relevant for interview prep?

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Comments (10)

Jul 20, 2015 - 9:34am

What is your current level of debt knowledge? Do you understand basic capital structure stuff? Like secured debt, unsecured debt, mezz, etc...? Structural vs. contractual seniority? Guarantees? Can you build a basic lbo model from scratch?

Distressed Debt Analysis is a very practical book but you need to understand concepts like the above first which are the foundation.

Jul 20, 2015 - 2:45pm

What kind of debt? Investment grade investing and below investment grade are very different.

Focus on bond math for IG and focus on valuations/value investing for BIG.

Pennies from JcPenny
Jul 20, 2015 - 3:13pm

What kind of debt? Investment grade investing and below investment grade are very different.

Focus on bond math for IG and focus on valuations/value investing for BIG.

Going to disagree here and say that valuations and value investing is probably not a priority if the private debt fund is like most and looks to clip 8-12% coupons on performing assets...

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Jul 20, 2015 - 5:08pm

8-12% is either super high yield bonds, distressed loans, or middle market finance into companies that really need the cash. None of which can be done well without understanding how the company works. Perhaps fundamental analysis is the correct term.

Pennies from JcPenny
Jul 20, 2015 - 5:28pm

I think the kind of debt the fund deals with is important to know. If this is a senior loan fund youll need to know less about distressed debt and more about basic credit and cash flow analysis.

Know the different ways a lender gets repaid. Know the different structures and covenants (senior/total debt leverage, FCCR, TNW if their is a guarantee, etc). Have an idea on how you'd look at a business and evaluate it's credit worthiness (cyclically, customer concentration, contracts with long term customers, industry, collateral quality, industry multiples, stuff like that.

I'd check out PE Hub to see if there are releases talking about past deals. Loan connector or LCD has debt primers and things like that.

If this is mezzanine or something like thst then you'll want to focus on other things.

Jul 21, 2015 - 7:48am

Thanks for the replies guys.

To give you further detail, this firm provides senior debt and mezz to companies. So I guess its crucial to understand what mezz and senior debt is, different loan structures (unitranche, etc.) and how to assess the credit quality and capital structure of firms?

Are there good sources on how to calculate returns when providing debt for mid sized companies? How does one decide on the optimal loan(s) for a company? How does the actual direct lending process work?

I only have a background in M&A through an internship so I know accounting and valuation to some extent, but starting quite from scratch in terms of understanding capital structure, leveraged finance, etc.

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