State of Leveraged Finance

Does anyone have any commentary on the state of leveraged finance groups at various banks?

The high yield and leveraged loan markets are obviously quite poor at the moment, but how has this impacted LevFin groups thus far? Have banks implemented a hiring freeze? \\

 

If the market doesn't pick up, we're likely about 4-6 months out from job shedding by banks.

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Best Response
abnba:

Do you think this will be mostly at the mid-mgmt level & above or will analyst's get caught up in this too?
I'm due to start in LevFin this month at a tier-1 BB as a lateral hire

It will depend on the staffing in the team ie where it's most overweight. The first place I'd start looking to cut is at the staffer, almost VP and VP level. With lower deal flow, you've got room to start cutting some of those expensive execution-focused human resources. Particularly those who are not showing they can morph into bankers who can bring in clients/revenue.

Downturns make it easier to keep the seniority pyramid in a pyramid shape.

But I wouldn't feel safe at a junior level, though.

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Think of it a bit like the fable about the hard working ants and the party-boy grasshoppers.

https://en.wikipedia.org/wiki/The_Ant_and_the_Grasshopper

Lev fin has been the grasshopper locusts, feasting on fees over the summertime of readily available, low spread debt of the last 2 years.

Winter is coming.

EDIT: The fable doesn't really work as a metaphor, because there's no ants in the Lev Fin story. In any case, I'm likely being alarmist. For the sake of my bonus (which has been driven mainly by the lev fin market for the last 2 years), I hope I am.

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The LevFin markets are currently in turnmoil mainly due to the huge decline in bond prices of oil & gas companies - many who are essentially barely staying afloat, as their oil derivatives are expiring and credit lines maxed out. That coupled with the recent shut down of a major HY fund (Third Avenue), large withdrawals from CLO, and banks forced to sell HY debt at steep discounts (or in the case of Veritas, being forced to hold the debt onto the BS until HY markets get better), as well as the general unfavorable macro landscape (commodities prices, China, Syria etc) and we have a simple dynamic of supply and demand, where there is an oversupply of LevLoan/HY bonds and lack of demand for HY in general.

If you're an incoming FT analyst, I think you'll likely be fine - it's really at the VP/newly minted director w/o a stable client base who will likely be under the crosshairs. Although I gotta say, if you're headed to MS LevFin, thing's aren't looking so bright there with the Veritas bond offering being a total botch (MS is the lead-left on the bond portion of the financing), amplified by the fact that MS inherently has a smaller balance sheet than the other banks, which is gonna take a huge hit to its capital ratios with all those HY bonds on its BS when it goes through the yearly stress testing... In fact, I remember reading an article stating that the head of Global Capital Markets was keeping a close eye on its LevFin division... Nevertheless, good luck

Array
 

ABX has ranged? It went to hell since August, AAA's getting crushed, just check out why Citi and there exposure. Lev fin doing ok? That's why the banks are holding over 85% of the Alltel debt that they couldn't syndicate and 50% of the FDC debt. PE deals being signed up currently? None for megacap US, some middle market, some international. Short LBO takeout rumors in the market, no big deal will be signed up till the banks clear the still huge backlog. Spillover in the leveraged market will happen once default rates pick up in the next 12-18 months (once all of those retail LBO's go to hell)

 

I dont think there's much activity going on in Lev fin these days... Acc to friends in the division. Even if deals are happening, they are towards the MM/ small section of the market. Price of leverage has defenitely increased in the past months.

 

from what i understand and what i've seen, E&P deals are pricing.  with oil teeterin on 100$ /bbl, investors like E&P debt deals.  the pricing might be a little steeper, but its deals are still getting done

 

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