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Corporate Banking interview

Do you want tocreate more value? How about work less?

valueadded work the whole time: corporate banking. I looked closely at Corporate Banking andLeveraged Finance departments. who spent some time covering the credit product side of finance and the economics research side of government policy. Here’s what you’ll get in this crash course:      How our interviewee got into the cash flow game of corporate banking What you’ll do and why you want to do it How the products you sell in corporate banking actually work Transferable skills compared to the traditional investment banking skill set Exit plans once you’re done giving away other people’s money Let’s get started on “converting” this interview into a full-time offer at your next corporate banking interview: From College to Cash Flow Q: How did you get started with corporate banking? A: I had interned before at a credit fund and wanted to get into something morestructured where I could do real work (i. But there is one group where you’ll get a more streamlined experience doing real. Our interviewee today comes from a corporate banking department that’s separate from the investment banking division you already know. So when it came time to look at banks. It’s more interesting to be in a group with deal flow than to be in a group without deal flow. and he’s going to give you a corporate banking crash course. it also gets you better hours. and for good reason: banking analysts spend way too many hours on a single model and run through over 77 revisions of a presentation… and that all-important meeting often gets postponed or canceled anyway. be busy with modeling rather than be busy with twiddling my thumbs). less stress. and solid exit opportunities.e. .You probably don’t associate either one of those with investment banking. I would have been very happy to work on leveraged buyouts. Today’s interview includes additional technical comments by Angela Choi. Of course. While corporate banking may not inspire you to become the next Blake from Mitch and Murray.

MBAs are also favored in the recruiting process. people will respect you for it. lucites. or other banking and investment products. or closing dinners when you complete a credit amendment. and most importantly of all – personable. Many analysts and associates complain about tough markets. But really.” Q: Wow – not even steak dinners? Let’s continue anyway… so you came from a credit fund. Every now and then. someone with an M&A background comes in to interview with my group. These “products” include:    Secured Term Loans Syndicated Loans with Multiple Arrangers Structured Finance-type Loans . Q: And now… the $745 million dollar question we’ve all been waiting for with 5 years of maturity and L+230 bps interest… What is corporate banking? A: Corporate banking provides financing to corporations and institutional clients through debt issuances. My department prefers people with a background in Leveraged Finance since many of our deals originate from there. but at least you’re doing something at work besides “following the markets. There is definitely less turnover compared to other departments – most people stay for a while or they leave for a couple of years and come back. Yes… the skill set from M&A is sort of/kind of/maybe transferable. but someone from a competing corporate banking department will get the preference any day of the week. my group is after someone who is well-versed in credit analysis. structured products. I’d much rather sharpen mycredit analysis skills. There are no tombstones. as they seem teachable. hardly anyone came from M&A. approachable.but in a market with few LBOs and many credit amendments [NB: changing the terms of a loan]. but I’ve made the most of my experience by staying positive and counting the things that are working out. what about everyone else in your group? A: My group has a couple of more senior staff members who came in from the various credit rating agencies. Once you’ve done it enough. though some had prior experience working in various divisions within fixed income. In my department.

  . Q: So it sounds quite similar to Debt Capital Markets or Leveraged Finance if I understand this correctly… in other words. the greater the fees the bank will receive. What does a corporate banker actually do? A: Actually. an administrative agent. this role entails handling a larger portion of a capital raise. Before we continue. or the economics of the deal. Any bank staffed on a corporate banking mandate will aim for a lead arranger role. is contingent upon the relationship itself. Agent: Similar to a co-manager in equity and debt offerings. Leveraged Finance: Same thing.Some banks operate corporate banking separately from investment banking. in this case selling investmentgrade bond issues to investors. Administrator: Monitors interest payments and debt principal balance. in other words selling new stock issuances to investors. Debt Capital Markets: You’re also focused on origination. Typically. Beyond that. while others have the two functions under the same name. who gets what percentage of the transaction. a participant. but now you’re more focused on high-yield bond issues and building LBO models. a financing oriented or capital markets-type role. and so on. the more responsibility a bank receives from the client. this role entails handling a much smaller portion of a capital raise. Here’s how these roles are different:  Equity Capital Markets: You’re focused on origination. or will aim to have the most responsibility on the assignment (doesn’t this sound familiar to how employee staffing works?). let’s make sure we’re on the same page with respect to “roles”:     Lead Arranger: Similar to a book runner in equity and debt offerings. Corporate Banking: You’re focused squarely on the terms of the loansthemselves – and your role differs depending on whether or not your bank is an arranger. a lender. that’s not quite true.

In addition. From a business perspective. speak with the clients. great measures are taken to grow and enhance existing relationships. your role as a corporate banking professional would be to focus on origination. Bridge Loans: Quick financing until a more permanent funding source can be originated.Often. draft the term sheet and credit memo. Here are the most common deal types in the corporate banking department:   Term Loans: You lend a fixed amount of money that requires annual principal repayments. a risk management or portfolio management groupcan be responsible for reviewing credit ratings and analyzing the creditworthiness of companies. In that case. In this case. the corporate banking team works with the coverage team who will. Depending on the bank. this means building rapport through market updates and discussions on potential acquisition targets. this means creating a strong understanding with new subsidiaries that clients may acquire. and see the process through to funding. As bankers seek to win repeat business within their coverage areas. syndicated loans are a large portion of our business. In such a setup. corporate bankers negotiate the terms of the loan. In some cases. in turn. . From there. the corporate banker maintains relationships with their corporate clients. Q: So how would a deal work and what would corporate bankers do? A: In a loan origination assignment. the corporate banker negotiates commitment papers and structures the terms of the loan. a team will be tasked with assembling credit memos and managing the modeling aspect. and a capital markets team who will syndicate the loans in the market. and to prevent the burden of financing the mandate fall upon just one party. Just as capital markets assignments involve many banks. and on a personal level. Essentially. a financial sponsor might use this resource after a bond offering is launched and before the proceeds are raised. Any syndicate develops in order to spread the risk among several parties. origination is just marketing – a term referring to how the team tries to bring in deals. the same group is tasked with marking to market securities and hedging the decisions of a corporate banking department.

5 – 2. Facilities .01%) are added for the risk of the company. Revolvers are often issued with the expectation that the client will only draw on a certain amount (often less than 10%). and geography. For example. basis points (1bps = . This treatment does not apply to Term Loans. So. sector. however. such as government policy forclean technology. or consumer preferences for consumer retail. The fees are very low compared to other investment banking offerings because the loans act as a way to “stay in touch” with the client. As you probably guessed. Revolvers: Client pays a commitment fee for access to a credit line that can be drawn from as needed. Usually.0001 = 0. What moves the market for corporate banking products? A: The London Interbank Rate (LIBOR) sets the baseline for interest expenses in my area. deal fees range from 1.  . The upfront fee and annual fees are smaller than the underwriting fees. Funded or Unfunded: This refers to how much of the loan the client will actually use. Sort of like a “credit card” for a company. Secured or Unsecured: Whether or not the debt is backed by the borrower’s collateral.Asset-Based Loans (ABLs): Use inventories or receivables to ensure payment is made. The bank itself will pay investors a portion of the syndicate loan or the Revolver to make sure the interest expense is covered. The pricing also depends on:     Sector: Some sectors are simply more “speculative” than others… use your imagination. firms support debt through via revenue generation (structured finance-type loans) or with assets (normal collateral). The Art of the Loan Q: Let’s talk about money… how much do you get paid on these deals? A: Depending on the type of transaction. since they’re always fully funded. and the fees may be based on that.5% of the face value of the loan. often used to meet short-term borrowing needs if expenses or mandatory debt repayments are higher than usual. The size of a deal can range from the tens of millions to over a billion dollars. Letters of Credit: A written agreement in which the bank backs payment in case the borrowing company defaults. Q: Sector groups consider key drivers. bottom-line: many types of credit lines are not fully funded. see the previous coverage of Structured Finance on this site.

please make sure to turn on manual calculation and iterations! Q: Who are your clients? Or more broadly speaking. and since they also have more collateral to pledge). what types of companies want corporate banking products? A: It depends greatly on the year. their operations will continue to be open for business. production falls. capital-intensive sectors tend to see more deals (because they need to borrow to fund operations. In terms of completed number of deals. and the ability to generate cash flow to repay debt weakens. Unless they really messed things up. Analytically Speaking Q: Do you have any materials on the technical side of corporate banking to share with our readers? A: The individual borrowers have to develop materials for anyone interested in contributing to the capital raise. So it’s sort of a “giant loop” in this industry. and how various sectors are performing. layoffs occur. which corresponds to the ability of borrowers to repay their borrowings. Supply is dictated by. Upon the initial announcement. expect to see consumer. even after the scandal(s). There’s some “circularity” in assessing how this market works. A good example of this concept is the bankruptcy of CIT Group (FKA: Commercial Investment Trust). The situation is quite analogous to the credit rating agencies ’ mistakes on collateralized debt obligations (CDOs). the health of the finance sector. . If mid-cap industrial firms don’t have loans to pay for capital equipment purchases. If you are running Excel for this situation. lenders and borrowers still use LIBOR almost universally – mostly due to tradition and the lack of a stronger standard.And yes. But generally. of course. what the market is doing. investors became concerned about the availability of loans for mid-cap industrial firms. where investors’ appetite for debt depends on companies’ ability to repay debt… which in turn depends on investors’ appetite for debt in the first place. industrials and communications as areas of demand when it comes to staffing assignments.

Credit Suisse. and the sector itself.Here are a few example presentations to different audiences:    Debt-Oriented Investors: [Revolving] Credit Facility: by Smurfit-Stone Container Corp. RBS. other times you’ll just accept a bag of money and call yourself a right book runner (laughs). Deutsche Bank. and sometimes it’s a big hand if you are the lead left arranger investment bank. the company (history. however. Bank of America Merrill Lynch. JPMorgan. you’ll have much more responsibility in developing the Confidential Information Memorandum (CIM) or bank book. and Morgan Stanley Consumer:  Reynolds American: by Lehman Brothers. and Morgan Stanley Business Services: . and Bank of America Natural Resources:  Calpine [selected pages]: by Goldman Sachs. Standard Bank. situation overview with key clients. financials). Any CIM describes the transaction. LandesBank Berlin. and VTB Walter Investment Mgmt: by Credit Suisse. Here are some examples for you (notice the absence of “projections” and the presence of a pro-forma capitalization structure in each one of these): Healthcare:  Sunrise Medical: by Deutsche Bank Financials:   Pivdennyi Bank: by LBB. Merrill Lynch. As a corporate banking professional. Citi. and Citi Media:  Tribune: by JPMorgan. Lenders: Lender Presentation: by WireCo World Group Rating Agencies: Rating Agency Presentation: by San Francisco International Airport You will have a hand in developing these materials.

a junior corporate banking professional focuses almost exclusively on credit analysis – and he/she cares about these metrics mostly on a historical basis. It’s part of risk control – you wouldn’t want to underwrite a debt raise if the company isn’t going to be able to pay back investors. and v) Loan Comparables. What can you tell us about the technical and financial modeling aspects of your role? A: Similar to what happens in Leveraged Finance. as a corporate banking professional you would focus on debt comparables. The internal memo is pretty straightforward: i) Executive Summary. The “comparables” don’t include multiples like Enterprise Value / EBITDA as you would find in a set of equity comparables. Goldman Sachs. iii) Company Overview. which include items like:     Size Maturity Coupon Debt Rating The relevant metrics might include:      Total Debt / EBITDA Net Debt / EBITDA Net Debt / Free Cash Flow EBITDA / Interest Expense Free Cash Flow / Interest Expense As you may have noticed. ISS Holding A/S: by Citi. Instead. ii) Transaction Overview. and Nordeo Q: Awesome! Thanks for sharing all those with us. iv) Financial Information. you’ll have to present the company’s case through a credit memo to an internal review board. .

that was a pretty thorough walk-through of the key skills you would gain as a corporate banking professional. you can use the screen LSRC <GO> to search for corporate loans. In my department. loans are constantly being amended and extended or refinanced with new facilities. So. . are the loans we underwrite ourselves. and also have the advantage of being fixed amounts. Getting In and Getting Out Q: How can readers get prepared to become corporate banking analysts? A: The focus is very much on the debt side of the balance sheet. Underwriting fees for Term Loans are significantly higher than upfront and annual fees for Revolvers. as you would expect. Afterward. Beyond the origination. When it comes to industry overviews. BMO Capital Markets provides a free weekly newsletter. which factors into the revenue structure as well. We have certain minimum thresholds for return on capital and the net revenue we receive on deals. and most of your knowledge will come from exposure to different loan facilities that you will write credit memos for. the training materials were rudimentary at best. Most of your learning will take place on the job. We will usually run the loan product through to look at the market spread for a given instrument and duration. like any other deal in finance. and if you have a Bloomberg Terminal.Q: Ok. Leveraged Commentary & Data is used quite a bit in leveraged finance to keep track of leveraged loans and the like. it comes down to: “Where can we get the best return with the least amount of risk?” The most lucrative deals. we run a model to calculate the marginal return on capital and economic contribution. and the bulk of the education came from participating in deals. LeveragedLoan. The senior banker is the greatest asset in your development.com and Standard & Poors have assembled useful primers. but how do you determine which companies receive loans in the first place? A: We have proprietary software for a Portfolio Risk Management system that aggregates and averages expected yields on different types of notes.

what’s the deal here? A: Think of it this way: the bonus pool depends on how well your group performs. It’s still good money for an entry-level job. late nights to overnight stays at the office are common. In most cases.Q: What are the typical hours for a corporate banker? You said “half the work” in the beginning. because I knew. A “normal” week might be more like 50 hours. JPMorgan. but on a normal day. which creates much better hours overall. Hours vary greatly depending on your outstanding deals and expected close dates. for reasons that shall soon emerge. and Bank of America Merrill Lynch (all commercial banks with large Balance Sheets) dominate the syndicated market and most deals will involve multiple major players. Citi. they can be anywhere from 9:30 AM to 7:00 PM and later. you’re not that busy all the time. that doesn’t sound like anything close to “half. And your own bonus is tied to how well you perform. that investment bankers didn’t like to talk about money. but you will not make the same six-figure+ all-in compensation right out of school. Q: Um. the all-in compensation will be significantly below what entry-level bankers earn because bonuses are lower.” NOTE: Based on the comments below. but I we’ll run with it for now. When a deal is closing. it’s not – it’s just that you won’t see constant 80-100 hour workweeks here unless you’re in the middle of closing a deal. The main difference is that unlike in banking. nor had I asked. What banks dominate this market? A: The benefit of working at large banks is that size helps to execute larger deals. so I have high expectations… A: Corporate bankers are at the mercy of their clients and luckily. Q: That’s a thin explanation. .” What’s the deal? A: Oh. so it’s still much better than investment banking. and NOT all-in compensation. Analyst and associate salaries are comparable with those in investment banking… there’s actually a quote from Liar’s Poker that I’m quite fond of: “He hadn’t told me what I would be paid. this meanssummers are typically slow seasons. Q: Let’s talk compensation…. the interviewee here was referring to BASE SALARIES.

You’ll see these professionals transfer mostly in the latter category. . such as CIT Group. which focuses on sponsor-backed companies. Commercial banks are also interested in the credit analysis skill set. as are other corporate banking departments. Q: So what’s the evolution of a credit analysis professional? Where do you go after receiving a full-time corporate banking offer and working there for a while? A: Corporate banking professionals target the same exit opportunities that the traditional investment banking and Leveraged Finance professionals do. So mezzanine funds and credit funds are very common. GE Antares Capital’s Underwriting Department also competes heavily in the loan space. but with a more credit or debtoriented focus.Other firms can be quite well-known in this area as well.