anyone

Probably the best primer for restructuring... should definitely give this a read.

http://www.hl.com/library/bsttcacs.pdf

Since you're a 1st year candidate they probably wont have much expectations of your restructuring knowledge, but you can demonstrate an inclination towards restructuring if you exhibit superior knowledge for a college student.

A few things you could look into:

1- Chapter 11 vs. Chapter 7

2- What makes a company file bankruptcy?

3- What is DIP financing?

4- How does a company actually restructure in a Chp. 11 process (in very general terms); possible DIP financing, reach agreement with creditors, renegotiate contracts, divest select assets

5- Know the waterfall of capital structure

6- What is the role of a trustee? CRO (chief restructuring officer)?

In one of my interviews, my interviewer rattled off a bunch of pieces of a make believe company's capital structure and asked what the value of a certain tranche of debt was. I didn't know it, but walked him through how I would try to figure it out. He said it was close and he really didn't think I had a shot in hell at actually knowing it but wanted to see if I could think it through in concept. So take that for what its worth.

Know your typical investment banking technicals... why do we use EBITDA? How do you calculate FCF? How do you value a company? etc...

PM me if you need more info on any of the questions I mentioned above.

i already read that thread...pretty interesting read..thank you all!

great post!

Could you discuss mezz loans in the waterfall?

But if all the assets, especially in terms of quality, are being sold, why would you want to own an asset-less company?

The entire loan-to-own/find the fulcrum security has always eluded me.

The real metric for solvency isn't balance sheet solvency, its really do you have cash flows sufficient to meet your debt obligations. Its really when you miss a principal or interest payment that you're pushed into bankruptcy. So even if your hard assets are less than your liabilities, your enterprise's ability use those assets to generate certain cash flow itself has a value... which true-ups any value gap.

So you've got a distressed company with $1 billion liabilities and $400 million assets. There's a $600 million value gap. The company's incremental ability to generate cash flows is worth say $300 million... so total assets+"goodwill"=$400+300 million=$700 million. This is a conceptual value, not a DCF. Its the concept that if you take X, Y and Z asset and sell them, you'll get a certain price for them. And if you keep them as part of an enterprise, the enterprise is worth A. Analogous to goodwill.

Enter Loan-To-Own PE player. Like anyone purchasing an asset, they believe the value they can derive from that asset is above the price they are paying. So a PE investor looking at the above mentioned investment has a reason to believe they can actually generate more cash flows than are currently being generated by that enterprise. Under their management, the incremental value of the cash flows they can generate is $300 million. So therein lies to the value play.

These numbers may or may not make sense, but this is essentially whats going on. On top of that, you're entering in a distressed situation where you enter at a distressed pruchase price, can renegotiate contracts and terms with just about everyone from unions, financial counterparts, JVs, lenders, et al. Considering PE firms squeeze out plenty of value from a run of the mill going concern, there is a lot of value to be had in these situations.

Feel free to supplement, I'm sure it can be explained better.

Is it easier to go for a boutique's restructuring group rather than their M&A group?

Just add mezz above preferred.

I think an easy way to think of loan to own is:

Company has 10mm in outstanding debt and had 3 creditors A, B, C A = 2mm B = 5mm C = 3mm

B sells loan to hedge fund for 50 cents on the dollar for 2.5mm; hedge fund's claim to the Company is 5mm.

You get a lot of bickering amongst creditors during bankruptcy over valution (I have seen extremes from 500mm to 1.4bn). It's in B creditor's best interest to understate value of the Company and in C's interest to overstate the value

If B's valuation "expert" can convince judge that company is worth 4mm, B, which would be the fulcrum, would end up with some mix of debt and equity and A's debt would be reinstated at par or A would be paid cash and receive a partial loan and C would be wiped out. C's valuation "expert's" job is to convince the judge that the company is worth 8mm so C, which would be the fulcrum, can receive some sort of return. C could be another hedge fund or PE firm that paid say 20 cents on the dollar for the loan so if C does convince judge that the Company is worth 8mm, C's return (not annualized) if successfully exited is 83%

If you can convince the judge that a company is worth less than what you really "know" it is, you get all of the equity upside.

If B can convince the judge that the company is worth 4mm but really believes with cost cuts, addt'l revenue growth, etc., it is really worth 6 or 7mm, B gets the additional 2 or 3mm upside if the judge rules in B's favor. remember A may get some cash and some equity but it's likely that a large portion of A's debt will be reinstated and most of the equity would go to B. Oversimplification and not that simple, obviously, but that's the gist of it.

Thanks guys, helped a lot.

Nice little discussion going on here. I think this site has been posted before, but thought I'd re-post given the discussion. The case studies he does are concise, clear and really demonstrates how value flows through the capital structure well. Another good read for those interviewing...

The Six Flags write-up is especially clean and simple...

http://www.distressed-debt-investing.com/2009/04/distressed-debt-analys…

hunter is the shieet

Big4CPA: How was your experience at the shop? a bit of background info on you/the firm would be appreciated.

Thanks.

Sure,

Top 50 University undergrad, accounting and finance dual major, graduated May 09', 3.86 GPA, Summa Cum Laude

My school generally doesn't place Finance well....During fall 09' Couldn't land FT banking or FO role...recession I suppose, even with hardcore networking. Fairly high person in Citi, told me "look elsewhere for now, or go to grad school, men with much more experience than u can't find work now".......Lehman canceled my 2nd round interview, merrill told me "no hires for now" - lazard the HR recruiter i had relationship with got fired...just seemed like everything went wrong even with my network...

My mom's brother has a distressed debt fund in nyc, around 700M, and so i asked him if i can intern there during summer-fall 09 ....I was hoping to learn alot, expereince, resume builder, possible future job.....but bc still dealing with hurdle rate, past redemptions etc, he wasn't willing to give me a FT offer (it just didnt exist)

Accepted offer from a Big 4 for Audit, here now taking my CPA, moving into Advisory or possibly consulting here though next yr...hoping to get back out in mainstream finance maybe post-MBA if consulting, or after few years in advisory....

Generally, just very beaten down by the pursuit of that Wall St. job which never materialized because of the global recession, poor University placement, and network which was still afraid....

I'm smart, ambitious, etc...but sometimes it's just not enough...

Agreed. Being smart and ambition is very important, but sometimes you just need to be lucky.

How did you like distressed investing? Anything specifc you worked on?

bump please, those interviews are here again for fall 2010 lol

and what exactly from the above posts has become outdated?

Following the post.

Question for Marcus_Halbstram, restructure-this, and other RXers:

I accepted a platform offer at a bank that does M&A and RX (think EVR/BX/Moelis), and am thinking about group placement. How would you compare M&A Generalist to RX in terms of skill set developed, day-to-day responsibilities, deal flow/experience, lifestyle, exit opportunities, etc.? I’d be interested in PE & HF afterwards, with no particular affinity towards one or the other.

At these 3 firms its not about day-to-day.... it about how each of the groups are regarded on Wall Street.

If Evercore or Moelis, M&A is ideal.

If BX, Restructuring or bust.

Thats really what these firms are known for. No one thinks of BX when they think M&A. Evercore and Moelis on the other hand kick ass and take names. The inverse is true for Restructuring. BX restructuring dealflow, placement is tops.

If you're a first year analyst and worrying about lifestyle, you're not going to last a day. Particularly if you're in the same breath concerned about deal flow and exit ops.

What about LAZ?