Private Credit Case Study

I've got a pair of case studies coming up in the next two weeks for private credit funds. These funds are both large ($25B+) and I'm interviewing for the direct lending groups. Anyone have any insight on what a case study would entail, how to differentiate myself, etc.? I know the format of one, they will give it to me and give me a couple of days for the model/writeup, and then I'll have to present. Any pointers would be very helpful.

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Comments (12)

Feb 7, 2018 - 2:31pm

I went through the process last year and am currently working in the space, albeit at a smaller fund. I think the case study itself in terms of format is pretty straight-forward: get a CIM, build a model and do a write-up highlighting business overview, customers, suppliers, go-to-market, industry/competitive landscape, investment merits, key risks & mitigants. Then show sensitivity tables around your model.

PM me, happy to answer more specific questions and/or review your case study when it's in draft.

Best Response
Feb 7, 2018 - 5:16pm

Pretty much in line with what jckund already mentioned.

I haven't done a take-home case study, but for the 90min to 3h case studies on the day you usually get a CIM and sometimes some additional information such as filings or research reports and as a first step build a standard model. Income statement (there was quite some focus on revenue build in one of the case studies) and then just the usual CF + debt schedule, similiar to what you see in LBO case studies, excl. the returns. You'll have to include the usual credit metrics such as leverage DSCR among others and often have to model some downside case / sensitivities as well.

Once I had to do a write up in line with what was mentioned above by jckund (two pages given the time constraint but covering the main points) and the other time I had to discuss the model and explain the rationale of my forecasting and assumptions as well as my general model structure.

All in all pretty standard, especially if you have also done some PE interview prep and know your LBOs.

Also, have a look at this thread (https://www.wallstreetoasis.com/forums/specialty-lending-gstpg-any-insi…) which I found quite helpful re lending.

Feb 7, 2018 - 5:17pm

Lending Case Study (Originally Posted: 11/30/2016)

I have been invited to a super day with Wells Fargo Commercial Real Estate team, and I have been informed that I will have to do an in-person one hour case study on the credit worthiness of a particular company. Does anyone have any advice on what I can expect from this?

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Sep 26, 2018 - 12:11pm

I have a case study next week with a direct lending / private debt fund - 2 hours long, followed by a 1-hour presentation.

It's my first case study/interview, and as per the comments above, the model will probably be your usual CF + debt schedule, with credit metrics. But how do you decide what kind of debt structure and what pricing to use?

Is there anything else from the model to help you determine whether it's a good debt investment besides the credit metrics (obviously you would use the IM for the other stuff like market/competitive environment, etc.)

Thanks!

Sep 26, 2018 - 12:52pm

In terms of other credit metrics, forget IRR and MOIC, you're going to want to look at FCCR, total leverage, debt service, coverage ratio, etc, other than credit metrics if you have a built in revolver be aware of when it is drawn and be able to explain the reasoning behind it and be able to talk working capital

Besides the financials you will definitely be given a CIM,I'm sure they will expect you to figure out where you would invest in the cap structure as well ex. senior, unitranche, mezz. Read up on a debt primer for more info if you're unsure, but all else being equal you're looking at a credit investment meaning your interest and principal is capped, you want to be paid back in full so you have to look for an investment that's recessionary resistant, recurring revenue vs project based work, diverse customer base that is sticky, strong value proposition as to why the company exists and how it is diversified, strong margins, revenue visibility, etc

Sep 26, 2018 - 1:15pm

I'd echo the focus on credit stats vs. equity IRRs / MOIC and be prepared to speak to key assumptions you made about the debt structure including overall leverage through senior and subordinated notes, debt pricing and especially scheduled amortization.

Traditional bank lenders participating in the senior debt typically need to have scheduled amortization of ~40% of the loan for the first 5 years (5/5/5/10/15 is a common amortization schedule). However, if you can use an investment fund for the senior debt you can get much lower amortization (I've sen 1-2% annually). This change in scheduled debt amortization will have a huge impact on the company's overall cash flow profile.

Also factors like goodwill amortization or an existing NOL can create large tax shields that can lower the cash taxes the company pays. Cash taxes are often included in the FCCR formula so definitely something to have on your radar for the model / presentation as FCCR is one of the most important metrics to analyze as a credit investor.

In terms of assuming the leverage levels and pricing you can look at what public comparable companies' debt structure looks like and try to match up their total leverage levels and overall cost of debt to triangulate on your assumption for leverage and interest rates. Also, you are going to want your FCCR in your presented case to be above 1.0x at the very least - so make sure you build in some cushion to that to show you aren't over-leveraging the company.

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