Q&A Leveraged Finance Group @ BB

Former Leveraged Finance / DCM Analyst -> Associate at a BB, left before COVID (thank goodness or else I then would literally have no soul).
Here to help those that are looking to get some inside detail in the job role, what you actually learn, and what you need to know during interviews.
Really glad I was part of a product group vs industry, as I was actually able to help finance a VERY broad group of industry agnostic deals (gaming, tech, healthcare, industrials, CPG, etc). Pretty much all except for RE.
Looking to improve a self-help tutorial online that a colleague and I also created to help with this sort of recruiting/insider knowledge so looking to see what questions the broad population are looking for as well
Now, we're in VC/Client side
Hope to help and ask away!

Comments (27)

 
May 29, 2020 - 1:52am

-What were some of your favorite aspects of working in Leveraged Finance?
-Some people make distinctions between modelling and "non-modelling" groups when talking about Lev Fin- in your experience do you find this to be a legitimate road block for ones career?
-Did you feel like you had many options in terms of "exits"- if you could compare to coverage that would be helpful (I'd imagine you have access to some that coverage does not and vice versa)
-Why did you leave and is it more difficult leaving as an associate?

Thanks!

 
Nov 6, 2020 - 9:57pm

Sorry for getting to this so late, see my answers below.

 

-What were some of your favorite aspects of working in Leveraged Finance? I was industry agnostic, so being able to work on healthcare, industrial, gaming, etc. was fascinating. Really learned that it's better to know a niche than spread your knowledge wide (levfin is one inch deep, a mile wide, whereas coverage is a mile deep, one inch wide). Also, we worked on a TON of transactions. Some analysts/associates leave banking without ever finishing a deal. Anytime an acquisition happens that requires debt, LevFin is called up to help structure it. My last year, I was on 10+ Lead Left deals, 4 of which were M&A related. Great experience to talk about
-Some people make distinctions between modelling and "non-modelling" groups when talking about Lev Fin- in your experience do you find this to be a legitimate road block for ones career? ABSOLUTELY not. You only need to know the basics. If a Company is asking for an intense merger model, that's were the M&A team comes into play. For LevFin, all you really need to know are the basics of a cash flow model. Check out lifeandlevfin dot com, they provide a good model structure of what you need to know
-Did you feel like you had many options in terms of "exits"- if you could compare to coverage that would be helpful (I'd imagine you have access to some that coverage does not and vice versa) A lot of the opportunities I was present were credit focused (credit funds) just because the head hunters thought I'd better fit into that. It's not true at all, the modeling that you do at Levfin is the same at coverage except any IPO/equity raise type of modeling. Definitely had a lot of opportunity to go PE, especially because the shop I was at is #1 in DCM for the last 20 years
-Why did you leave and is it more difficult leaving as an associate? I left because I knew banking was the end all be all for me. I took at look at MDs and EDs and they literally told me that they chose work over family. That's not how I want to be remembered when I die. You always have to look at the endgame and look 10 years down the line to see whether IB is something you genuinely enjoy or just like because of the money. I actually did like it in my first two years, but afterwards, it was really telling at how money hungry the top MD's/Execs were and how that drove a lot of painful and hurtful comments. I'm done with finance forever, making money out of money is not fulfilling for me at all, but for others it definitely can be. 

 

Please let me know of any other questions, I would love to keep helping out

 
May 29, 2020 - 2:20am
  • How much of your time was spent on repricing and general marketing material for CIB coverage? (a percentage)

  • what do you think about in a pitch: repayment capability, nuts and bolts of a credit agreement/indentures (being clever), or fee income?

  • how sophisticated are the clients you covered, disregarding the PE backed (which might be sponsors), and the large caps/What was the least sophisticated?

  • How dead would you be if you had to work in Levfin in March/April. Are the guys you know who are still there alive?

 
Nov 8, 2020 - 12:58pm
  • How much of your time was spent on repricing and general marketing material for CIB coverage? (a percentage) - More repricing than general marketing material for CIB. Would say 30-40% repricing, 30-40% M&A deals, balance is general marketing (very easy)

  • what do you think about in a pitch: repayment capability, nuts and bolts of a credit agreement/indentures (being clever), or fee income? Depends on the pitch, most likely terms from a credit agreement (clients only care about pricing and covenants)

  • how sophisticated are the clients you covered, disregarding the PE backed (which might be sponsors), and the large caps/What was the least sophisticated? Typically clients understand credit agreements and term sheets, they also have their own lawyers to help spell everything out for them. One thing they definitely do not understand are underwritten terms (fee structure). In the end, they just care about how much they're going to pay for all of it, and then their debt capacity / covenants. 

  • How dead would you be if you had to work in Levfin in March/April. Are the guys you know who are still there alive? Have kept in touch with some of them, it's been nonstop work for them with the understanding that bonuses are going to suck this year. Truly privileged to have left prior to all of that

 
  • Intern in IB - Gen
May 29, 2020 - 3:45am

What percentage of your group exited to a credit fund or distressed/special sits fund versus vanilla PE? How hard is it to exit to a distressed/special sits fund considering you're competing against RX bankers?

 
Nov 21, 2020 - 2:18pm

60% Credit Funds / Direct Lending / Distressed and Opportunistic Debt, then 40% vanilla PE

With a lev Fin background, I would say it's much easier to exit to a distressed/special sits fund because of all the legal experience you gain from being in lev fin. Many people don't know but lev fin and DCM have a LOT more to do with legal work (covenants, credit agreements, term sheets) than industrial groups

 
Nov 8, 2020 - 12:46pm

Only stayed until 2nd year associate. 1st year associate is pretty standard across all of IB, it then varies when you get to 2nd year and how your group performs. Associates in general (anyone under VP) are insulated from varying bonuses as the role is not revenue generating. So regardless if the group did fantastic or absolute sh!t, they normally stay the same across the firm. Wallstreetplayboys has a good breakdown of the salary and bonuses so check them out.

Work wise, because it was so transactional, varied a ton. There were some really lucky weeks were you could leave at 6:30/7pm everyday, but normally speaking, you wouldn't leave before 8/9pm at the earliest, and then come in over the weekends. 60/70 hours are typical, but when you're in an M&A debt financing transaction, you're going to be working 4 hours at least on the weekends per day and then just having to respond to emails. 

Associate was much more stressful because you were responsible for the work of the analyst. So even though you're not doing the BS powerpoint formatting and making the CIM/pres look nice, you still have to check each number and review the work. Honestly, worked more as an associate than I did an analyst because I wanted to make sure my work AND the analyst work was perfect

 
  • Investment Manager in AM - FI
Nov 7, 2020 - 9:42am

Not a typical route I'm sure but can you exit to Corp Dev from Lev Fin? Have you seen many examples of this at the Analyst or Associate level?

 
Nov 8, 2020 - 12:48pm

Yes, absolutely. typically, the corp dev route would be in the treasury and cash management function, but you certainly have the skills to work on your typical corp dev / M&A junior positions. You see more of this actually from the analyst level going to a junior position at corp dev and work their way up (if you take a look at all high ranking corp dev people, you'll see they started as a junior and worked up vs starting in IB and lateralling over). You don't really see much transition from associate because quite frankly, the salary and $$ drop from IB to the client side is so severe and there actually is a negative bias against IB-ers going to the client side. However, the work/life balance is something you can not understate. 

 
  • Analyst 1 in IB - Gen
Nov 8, 2020 - 3:38pm

1) I have been told that some US BBs are basically operating like an "assembly chain" whereby the M&A/IBD teams do all the work (Business Plan creation + biggest contributors to Credit Memo), and LevFin tends to focus on the origination/grid/structuring and syndication. As a result, you may not develop a strong "fundamental" skill set in the LevFin role. Is this true? Would then being part of IBD better than working in the LevFin team itself?

 

2) Along the same lines.. Some other banks seem to, similarly, have the LevFin team doing the origination/grid/syndication, and have a separate team that "supports" origination and focuses on execution/credit approval (processing DD materials and drafting the memo, looking at the CF modelling). Then, the first team is FO. The second team on the other hand is not really FO, is it? It seems to do the "heavy lifting" and you'd get more of a fundamental skills set. Would it be perceived badly if you're not part of the FO team, for PE/DL exits? 

 

3) More confusingly, sometimes Portfolio is part of those teams, sometimes it's separate. When separate, that is not considered FO right? And that's where people go AFTER LevFin, and not really if they want to go TO LevFin. Could you confirm this? 

 

Could you share your thoughts on which experience would be best and confirm (or not) the different ways LevFin is organised at different banks?

Thanks a lot for doing the Q&A!

 
Nov 11, 2020 - 8:03pm

1) Part true, part false. The M&A/IBD team will have a lot of say into the business plan creation and contribution to credit memo's because they have the deepest depth in industry experience. It would be tough for a levfin banker to really understand the drivers behind an acquisition better than the actual coverage banker, as the levfin banker can be spread out amongst a lot of adjacent industries and not just say specifically biopharma in healthcare or med tech in healthcare (healthcare has a ton of sub-industries). At times where M&A is too bogged down s well as the IBD team, the levfin team will have to churn out the pro forma modeling and the debt paydown structure so that it gets approved within the bank (for any sort of M&A, the deal is 99% going to need to be underwritten). As such, the levfin team will need to approve that the bank's balance sheet can be used for the transaction. From a fundamental skillset perspective, levfin misses out a lot on the equity side of things and industry knowledge because we're the executioners and transaction folks. However, we also need to be able to tell our sales & trading desk the biggest reasons for this acquisition and respond to investor questions, and in instances where we don't know the top answers, will pull in the industry junior team (Vp/Assoc/analst)Part true, part false. The M&A/IBD team will have a lot of say into the business plan creation and contribution to credit memo's because they have the deepest depth in industry experience. It would be tough for a levfin banker to really understand the drivers behind an acquisition better than the actual coverage banker, as the levfin banker can be spread out amongst a lot of adjacent industries and not just say specifically biopharma in healthcare or med tech in healthcare (healthcare has a ton of sub-industries). At times where M&A is too bogged down s well as the IBD team, the levfin team will have to churn out the pro forma modeling and the debt paydown structure so that it gets approved within the bank (for any sort of M&A, the deal is 99% going to need to be underwritten). As such, the levfin team will need to approve that the bank's balance sheet can be used for the transaction. From a fundamental skillset perspective, levfin misses out a lot on the equity side of things and industry knowledge because we're the executioners and transaction folks. However, we also need to be able to tell our sales & trading desk the biggest reasons for this acquisition and respond to investor questions, and in instances where we don't know the top answers, will pull in the industry junior team (Vp/Assoc/analyst)

2) 

The separate team that focuses on credit approval is the Credit team, separate from LevFin but certainly partners. Levfin is juch more involved in origination, syndication, and the main differentiaor, execution (creating CIM/LP/Investor Deck/Roadshow/investor calls/due diligence meetings). Levfin team also has their own modelling for balance sheet approval as does the credit team (so two separate models as credit looks at severe downside cases). Yes, LevFin is absolutely front office. Credit teams also get some client interaction as well (more on the legal side and quarterly reviews)

I woouldn't say being on the credit team is a negative thing for PE exits, as you're getting good exposure into modelling and understanding risk factors, but you just don't get the execution experience of being in market.

3) I'm not sure what the question is asking, but hopefully the above answers helped out 

 

I can't really say how drastically different it is at other shops – some shops might be more market focused (true debt capital markets) but overall they're generally the same. You will need to have a pulse on the market and know how to structure debt (leverage ratios / debt capacity / Cash Flow Modelling / general banking acumen) and how debt gets priced. Some banks might be more Sponsors focused (like MS/Goldman/CS) because they don't use their balance sheet as much as banks like BAML/JPM/WF do, but everyone goes through the acquisition process and it doesn't differe much from bank to bank. 

 
  • Prospect in IB - Gen
Nov 11, 2020 - 4:01am

Could you give some color on the opportunities to lateral into the LevFin team if you are in another credit-team at a BB, such as Structured Finance (doing Project Finance, Acquisition Finance etc.)? Where did laterals mostly come from? Thanks!

 
Nov 18, 2020 - 9:02pm

Sure thing, those that lateralled as a junior usually came in from credit or structured finance (due to the credit risks/reward background). The biggest factor in getting accepted was fit and culture after that.

We only had lateral hires from industry groups however. Not sure if that was just an anomaly, but people from Industrials or healthcare latteralled into levfin as an associate (and not from credit/structured finance)

 
  • Analyst 2 in IB - Gen
Nov 13, 2020 - 5:35am

In terms of exits to private credit, how's your perception of exit opportunities from Credit focussed roles? I'm in exactly one of the teams you described above (credit risk), but have exposure to leveraged deals, legal terms and modelling, but am under the risk umbrella (part of the CIB but not FO)

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