Q&A: VP in LO Public Credit

Sure thing. Assuming you mean our private side which I don't really cover. I'm not sure on number of deals but they probably average $100-200m per check, have the potential to go a little larger and eat a whole deal but they generally play slightly larger deals where they hold 30-50% of a tranche.

Comp obviously varies by shop. For me at a very large manager, it was $250k as a first year up to roughly $390k in my final associate year. Probably the best comp/hours balance I'll ever have since that was a junior analyst role (i.e., I wasn't responsible for making credit calls myself but was supporting a senior analyst in doing so), so I worked extremely low stress 50ish hour weeks and really could've fulfilled my responsibilities in 20-30 most weeks but seniors trusted me to do some of their job (with supervision) so I worked more. At VP level I'm a senior analyst / sector lead so more fun but also more stress. Comp depends on fund size again but I'd say anywhere in the $400-600k range is probably market. Also depends a bit on strategy...my old shop was very large so at the high end of that range / maybe a bit above but it was pure play HY so no carry, etc.

Definitely opens the door. Probably right there with RX as the most common background I see. I know LevFin groups kind of vary across the street in terms of how "capital markets"-y they are but depending on your experience it may even be an easier transition. In addition to learning my industries, I had essentially no working knowledge of how the market actually works in terms of technical dynamics, etc.

Coverage groups can get you into public credit as well, but as with any job, you need to be able to explain why you want that seat which is a little harder for analysts that worked on other kinds of deals. Industrials analyst that worked on multiple HY deals? Easy enough to explain. TMT analyst focused on IPOs? Interviewers will understandably be skeptical that you're actually interested in public credit. There's also definitely some selection bias buried in that observation, in that TMT analysts are going to be more interested in VC and other stuff, but I think the point stands.

I usually get into the office 8-8:30. My morning is spent dealing with stuff, new deals, morning earnings or overnight news, that type of thing. Afternoons are generally when I work on longer term or less urgent stuff like generating new ideas for our various strategies, reading research on my sectors, or speaking with connections on the sell side. Depending on how much of that stuff I have to do, I'm usually done somewhere between 5-7 with a usual non-earnings week probably being 5:30-6.

CFA is definitely not necessary. I think it's probably a value add but not enough to make it worth the time suck. Some firms will make you get either a CFA or MBA to make senior analyst. Mine doesn't. I don't have one and don't really plan on getting one unless somebody tells me I have to.

No problem. RX and LevFin are both super common. You'll also see industry coverage bankers and some sell side HY analysts transition to the buyside. To be clear I'm talking about HY "desk analyst" type seats, not traders or salespeople, at least for credit analyst roles. Other backgrounds definitely happen but as far as I can tell it's super ad hoc and hard to draw more general conclusions about those.

The two main differences are process and liquidity. In terms of process, a bank will syndicate public credit to a broad array of buyers whereas in private, they'll negotiate directly with the company or sponsor and you'll only have one or a few buyers in each deal. On the public side, the time from announcement to closing can be anything from a few hours for a HY drive-by issuance to maybe 2 weeks for a not well know loan issuer. In private markets, they do way more PE style diligence so it takes longer. And private negotiates price, whereas in public it's more like the bank saying "this is gonna be 7% area, take it or leave it." And then in terms of liquidity, I know what I can buy or sell any security for at all times on the public side since these things trade. Maybe for some super small distressed tranche there's a 3-5 point bid/ask but overall it's relatively liquid. In private, they generally don't trade barring some distress or a fund issue or something like that; you have to be prepared to hold the deal all the way to maturity. And if they do trade, it'll be subject to the same diligence and negotiation process as with the initial underwriting.

I know this is contradictory to what I mentioned above, but honestly a CFA or MBA might be your best bet. I don't think I've seen anybody make the equity -> credit transition directly. The only other thing I can think of is to try to get coverage of an industry that has a lot of HY issuers. If you know the industry you can learn the bond math. I would think it'd be easier for IG but I'm not as familiar with people's backgrounds there.

I think pretty well insulated from automation. The calculation of credit metrics can be done by a computer but I think it'll be a while before computers become competent judges of relative value and "known unknown" risk. Automation (as with algo trading) will happen in more liquid markets first, so HY credit definitely won't be the first domino to fall. Also, a broader comment which applies to equity as well, I think firms are really underestimating the importance of grooming juniors for eventual senior seats w/r/t AI. Yeah, a computer can calculate leverage and build you a three statement model, but you still need a senior to process that output and develop a view along with more intangible stuff that computers have a hard time analyzing. But if you completely automate the junior end, eventually your seniors will retire and then what're you gonna do, promote the computer?

Didn't mention it above but I've seen corp banking backgrounds here. Not the most common, but it certainly happens. I would think the main hurdle is going to be a case study just given longer timeframes for corp banking. Case studies in HY are generally 3ish hour format like a PE case study but instead of focusing on paper LBO returns, you're looking at credit metrics to answer the question of whether you like this bond. Other than that, it's just networking. I would imagine you have some connections among the levered loan investing community but a lot of shops do both so you can probably find one that works for you.

As for distressed, that's a skill that takes time and even coming from an RX background, it's one I'm still learning as an investor. The process of having a bond go from par to 60 is very different than RX banking where you get involved when the bond has already traded off. If you're really worried about it, a lot of shops have some sort of distressed/workout specialist, usually a senior person with a distressed background who will advise and oversee those processes; you could look for a firm that has that if you'd like a little handholding on your first live reps. But lots of firms hire people with no distressed background so I wouldn't worry about it too much. Eventually you will have an investment go south, we all do, and after a few of those you'll have spent more time than you care to thinking about the distressed process.

See above re: corp banking (I think I was typing when you posted, not your fault). For distressed specifically I think it's a rarer move than performing. You really need an understanding of the restructuring process. Opportunistic can mean a lot of things...for us I'd call it "stressed but ultimately performing." If you're looking for something like that, buying stuff well below par with an eye to par-like recovery without a restructuring, corp banking probably works. If more true distressed, you probably need some more direct experience.

Absolutely. A lot of the analysis is essentially the same, just modeled more granularly on the private side. You'll have to get used to the timeframe; learning how to develop a view on a credit in a few hours definitely takes practice. But otherwise, I don't really see any obstacles. It's definitely more common to see people go private -> public than public -> private. For what it's worth, I generally agree with your comment on relationships vs. acumen but I'd note that relationships are still important on the public side. If you can get access to bankers and management in pre-marketing / "early look" stage of a deal, or if you're consistent and thoughtful with your reverse interest, that can really help performance in the long run.