RX Guide - Overview

RX Interviews:
The Overview
Restructuring Interviews
ALL RIGHTS RESERVED New York, New
York
A Note Before Beginning:
This report is meant to give you the context necessary not only to succeed in an
interview, but to understand what your future job in restructuring will actually look like.
This report will teach you what restructuring is, what restructuring bankers do, and most
importantly how to succeed in your interview.
There may be a significant amount of vocabulary that you are not familiar with
throughout this report. Even if that is the case, power through and read it all before
moving to the rest of the course. Rest assured, after you go through all the questions &
answers (found in the members area) you’ll understand what all of this vocabulary
means.
As an additional note, the world of restructuring is immensely complicated. Deals cannot

be as cleanly distilled as they are in M&A banking. As a result, I focus on giving you the
lay-of-the-land, while making sure that I focus in narrowly on both what you need to
know for an interview and what you’ll do as a summer or early-stage full-time analyst or
associate.
It’s very easy in the world of restructuring to get bogged down in the details as they are
seemingly endless. This course is meant to teach you what you need to know to get in
the door and then punch far above your weight in your first few months on the job.
Let’s get started.
RestructuringInterviews.com 2020 – All Rights Reserved 1

Chapter 1: What You Need to Know
Introduction
Welcome to the world of restructuring (hereby, “RX”).
This course was created because while most investment banking prep guides have a
very small section on restructuring, they miss the mark of what restructuring interviews
are actually like and what the job is really all about.
This course was created not just so you can stand out in interview by actually
understanding what RX is, but also so that you don’t jump in not knowing what you’re
really getting into.
This course wasn’t just created to land you a job (although that’s an essential first step),
it was also created to help ensure that you can succeed far above expectations in your
first few months on the job.
Many people come into the world of RX and quickly feel frustrated and confused – even
if they’ve done a stint in M&A – because of just how different RX is. As previously
mentioned, RX is a vast landscape and deals are on average much more unique in their
structure than in M&A. However, if you have a good bearing on what tasks you’ll be
given in your first few months, and how they should look upon completion, it’ll make you
feel immeasurably more comfortable and confident as you then begin to get placed on
weird, unique, and usually quite exciting live deals.
The job of a RX banker compared to the job of a traditional M&A banker is about as
similar as the job of an equity trader is to a high-yield bond trader.
They’re similar, sure, but they have substantial differences. Both M&A bankers and RX
bankers sit at their desk for long hours studying companies (some they are engaged by,
some they hope to get engaged by), they get paid for advisory services by those they
have engaged by, and the by-product of these long-hours are spreadsheets and pitch
books.
…However, the kind of companies they deal with, the kinds of analysis done, and the
thought process that binds this all together could hardly be more different.

What this creates is trouble in how RX banking interviews are conducted…
It used to be the case that the world of RX IB was so insular and so small that
interviews were more or less exactly the same as traditional M&A interviews. It’s not
that the questions asked were overly relevant to the job, it’s just that you couldn’t
reasonably expect inexperienced young people coming into an interview to know about
DIP loans, spring forwards, or cram downs.
Over the past decade the world of RX IB recruiting has changed. There are now specific
programs at firms like PJT, Lazard, Evercore, and Houlihan Lokey for restructuring.
Interviews for those looking to get into RX are now conducted by RX bankers
themselves.
We’ve also had an increase in the number of college classes about RX. Primarily
stemming from the success of the undergrad and MBA RX class taught at Wharton
(FNCE 391/891).
This has led to RX interviews becoming their own beast that you’ll need to master.
There will be some similar questions to what you’d find in a traditional M&A interview –
surrounding primarily accounting – but you will also touch on actual RX concepts.
The good news is that the threshold for answering these actual RX concepts well is
absurdly low. Even just understanding what the question is asking earns you marks. It’s
not like M&A banking where a single wrong technical answer can knock you off the list.
…The bad news is that RX in practice is much different than the RX you find in the
primary textbooks used by aspiring young RX bankers (namely Distressed Debt
Analysis by Moyer, which incidentally is the primary text used by the Wharton class
aforementioned).
The aim of this course is to offer you a bridge between the academic sphere of RX and
the practical sphere.
When I entered into RX many of my peers were blindsided by how different RX was in
practice to the theoretical side they learned (most RX bankers at that time came from
Wharton or occasionally Harvard, although now it’s more diverse).
An interviewee who can successfully communicate RX concepts well and has the
context of what an RX banker actually does puts him or herself in the top percentile
automatically.
…In a traditional M&A interview it’s easy to convey that you know what a M&A banker
does as there are so many resources available that everyone has a rough idea. When

conducting RX interviews, however, it becomes readily apparent when an applicant just
doesn’t really know what the hell it is that RX bankers do.
My goal is to give you the background, terminology, and (most importantly) the context
to truly stand out and be confident in your RX interviews.
The Aim & Structure of This Course
The aim of this course is simple: to ensure that you can ace the restructuring interview
by having the right knowledge and context to draw upon despite having never seen RX
banking done in practice.
The structure is to give you both the practical and academic side in the form of real-
world questions, answers, and examples.
…Unlike other interview guides that give you just the answers to questions in a line or
two, I go in-depth in order to (hopefully!) make sure you understand why the answer is
what it is.
In the world of RX, things get fuzzy quick. Very smart people can disagree on what the
right path is, what the right analysis is, and what the outcome of a restructuring should
be.
Good interviewers will provide pushback to candidates who seem to have a grasp on
what RX is all about to see if they really understand it. The overarching aim of the
course is to make you comfortable and confident in your answers, even if you get push
back.
The course is broken down into a few different PDFs:
• Overview: The PDF that you’re reading now is meant to give you a broad
overview of this course and the day-to-day tasks of a junior RX banker. Don’t
treat this PDF as an introduction you can pass by; contained within it are the
actual deliverables you’ll be tasked with producing. This PDF also gives you a
primer on the industry, the players, and what RX really is in practice. It ends with
an overview of how you should approach RX interviews. Once again, don’t skip
this PDF just because it’s an “Overview”. Just knowing answers to questions is
entirely insufficient without a broader understanding of what RX banking is all
about.
• RX Interview Q&A: This report contains 143 lengthy restructuring-specific

questions and answers. Some of which are contextual – around what the day-to-
day job is – and some of which get into specific terminology and concepts used.

• Accounting & Valuation Q&A: This report contains 96 questions and answers
surrounding accounting and valuation. Many RX interviewers will still ask you the
“traditional” IB technical questions, so you need to be prepared for them. I
compiled some of the most popular ones here that are relevant to RX and always
put a RX-spin on them, where possible.
• Distressed Debt Analysis Q&A: This report contains 145 questions and
answers developed partly from Distressed Debt Analysis by Moyer, which is the
Bible of distressed debt and restructuring. This will give you the finer details of
restructuring and I’ve made sure to make my answers as accessible as possible.
• Distressed Investing Q&A: This report contains 78 questions and answers

developed partly from Distressed Investing by Martin Whitman (the legendary
distressed hedge fund manager). These questions and answers are more
practical than those in the Distressed Debt Analysis Q&A and should reinforce
what you’ve learned throughout the course.
• A Pragmatist’s Guide to Lev Fin: This report contains 108 questions from A
Pragmatist’s Guide to Leveraged Finance by Kricheff. This is where most of the
vocabulary you need to know resides. It’s important to remember that RX is really
all about understanding debt and capital structures and this report will tell you
everything you need to know to get started.
• Cap Table Q&A: This report goes over several cap tables and how to think
about them. Creating and understanding cap tables are the most important tasks
for a new entrant to RX or distressed debt. So much so that in some interviews
you’ll be given cap tables and asked questions about them (which is exactly how
I’ve structured this report).
There’s a lot of information here, and for a good reason…
RX is the Most Competitive Job in Banking
It always has been, and likely always will be. RX has been dominated by just a few firms
who have worked for years to build up expertise in this narrow field.
Generally, the analysts come from an even narrower band of schools than BB M&A
analysts – traditionally over 50% have come from either Harvard or Wharton – and
associates normally have a dual MBA/JD or merely a JD, with prior experience in Big
Law in NY (if they haven’t done an analyst stint in restructuring).

While many full-service banks and boutique advisory firms engage in M&A advisory
services, just a handful of boutique firms really play a meaningful role in restructuring
advisory.
A question an associate was asked in an interview once was why this is. Why are
there just a handful of firms with restructuring units (PJT, Moelis, HL, Evercore,
etc.) and why don’t bulge bracket firms have a meaningful presence here?
This is a fantastic question. It gets to the core of figuring out whether a candidate really
understands restructuring.
The reality is a bit complicated and has a few different “right” answers, but here’s one
that will show you understand the right context.
In M&A the institutional framework of the bank matters a great deal. It matters that you
have a robust equities research division in the client’s niche, that you have a robust
equity or debt capital markets division, etc. In short: it matters that you have a balance
sheet.
In RX, not only do none of these things apply, they actively impede the ability of a firm
like what is described above to engage many RX clients due to conflicts of interest.
Here’s how: If XYZ Company goes and raises $500mln in debt that debt will be
syndicated by, for example, JPM. The syndication will, as always, be spread around and
become part of the composite balance sheet of any investment bank that actively has
any kind of debt trading business (in other words, every full-service investment bank).
Equity researchers at every investment bank will then write about the company – assign
buy, sell, hold recommendations – and meet with management (if the company is large
enough).
When the company needs to restructure, we run into an issue. Obviously JPM is
conflicted (how can they give restructuring advice, after having raised them debt that is
now trading poorly and perhaps put them in a restructuring scenario!). But what about
other banks? Can banks that have purchased that debt, or held it on their balance
sheet, or made prognostications on the soundness of the firm, etc. give sound advice?
The quick and dirty excuse could be, “Well there’s a fire wall between different divisions
within a firm like JPM to avoid conflicts of interest”, but in practice companies want fully
independent advice when it comes to RX.
This is partly because restructuring – at its bones – comes down to the debtor
(company) telling the creditors (debt investors), “Hey, we agreed to this specific term
sheet, but we’re in a bad spot so how about we do something different that puts us on
the line for less?”

If the bank advising the company has any kind of conflict of interest – perceived, real, or
border-line imaginary – then creditors will sue and say that the advice of the bank is per
se perjured because they were complicit in some airy-fairy kind of way in getting the
company into the predicament they’ve found themselves in.
So, to ensure that there can be no perceived conflict of interest whatsoever companies
look to investment banks that don’t have balance sheets – that are pure independent
advisory banks who have no prior dealings with the company in question.
…In today’s parlance these firms are often called Elite Boutiques (EBs) and have both
an M&A side and a RX side. Sometimes analysts and associates will work across M&A
and RX (Moelis), but most of the time they are separate and distinct (PJT, Evercore, HL,
etc.).
In RX, MDs Matter Even More
In traditional M&A banking – which I use broadly to mean things that include actual M&A
activity, IPOs, etc. – the MD that leads the deal team matters, sure. But the institutional
framework around the MD also matters a great deal.
Companies will and do choose, for example, Goldman Sachs to be at least part of a
given transaction for the name brand. The relationship that the company has with the
MD matters to an extent, but you’ll have scenarios where the relationship isn’t overly
well cultivated.
…GS may not be lead-left on these transactions, but they’ll have a roll for the perceived
prestige and vote-of-confidence that the GS name lends.
In RX it’s an entirely different story. There’s rarely a pre-existing relationship between

the MD and the company, because the company usually hasn’t got into a restructuring
situation beforehand (rarely you’ll see a Chapter 22 or 33, when a company files
Chapter 11 again, which we’ll get to later).
So, when a company is deciding what the hell to do – with their money running out,
stock plummeting (if public), and executives leaving – RX firms go in to make their pitch
and there are few preconceived notions about what firm should be picked.
This makes being in RX, as an analyst or associate, exciting as it’s relatively (for
banking) meritocratic. The best pitch that has the best solution will (most of the time)
win. Unlike in M&A banking, the solutions will often look vastly, fundamentally different
(instead of just being disagreements over the mix of cash/stock to use, or valuation
range, etc.).

…If you work as a M&A analyst at many smaller firms, you’ll do endless pitches
knowing that most deals you simply won’t be engaged on. Your pitch is a nicety to the
company. The CEO wants to feel important and have a dozen banks come groveling for
a piece of his or her business, but they’ll likely go for the more “prestigious” banks.
In RX you have a much smaller subset of firms that all come in with little to no prior
experience with management making their case. If your pitch is good, if it resonates,
you have a good shot at winning the mandate.
Why Choose RX?
This is an extremely common interview question. In the actual Q&A guides I give more
succinct answers, but you shouldn’t just regurgitate what I tell you: you should think
deeply about it yourself.
Note: One good, unique answer is what I just brought up in the section before. RX is a
small world, with a few banks competing on most RX mandates, so the work you do as
an analyst really matters. Your work can truly move the needle on getting the mandates
because most companies will not have a particular bank they’re predisposed to prior to
the initial meeting.
You may want to caveat this answer by mentioning that sponsors (PE firms) with
portfolio companies in need of restructuring may have used a certain MD many times
before. In this case, relationships matter more. But this occurs less frequently than in
the world of M&A.
RX operates at the intersection of finance, law, and psychology. The latter almost
always gets missed as many young people – studying finance or economics – have a
bit of an insecurity about what they’re doing not being scientifically rigorous in some
way.
In M&A you have a “right” answer around the EV of a company with significant error
bars around it. For example, if I’m trying to come to a decision as to what a company is
worth – based off a DCF model – we can argue about WACC, but our argument will be
around +/- 100bps (1%). We can argue about the right revenue growth rate, or how
much the terminal value should make up of the enterprise value, but we’re talking about
things on the margins. We’re at least in the same ballpark. Our enterprise values will
likely not be that fundamentally different.
In RX two professionals can look at a company and one can say: we should just extend
out the maturities and bank on a turnaround, another can say there should be a convert
offering, and another can say a pre-pack Chapter 11 should be entered into ASAP.

These are all hugely different things. They completely reorganize the company’s
balance sheet in fundamentally different ways; in how much cash the company will get,
in what the proceeds will be used for, and what the legal mechanisms behind it are.
And the right answer? No one really knows. Every transaction is unfalsifiable – you can’t
run it again under the same conditions while trying a different strategy. It comes down to
the finances of the transaction, the legal ability to get it through, and the psychology of
the creditors (what you think they’ll really want to do if pushed hard enough).
Nothing in banking is overly prescriptive (something many young people don’t quite
realize), however RX is the purest form of “art” in banking you’ll find. Ideas matter in RX
more than in any other form of banking. Creative solutions matter.
…This is why RX is a rather exclusive area, its why compensation is generally higher,
and it’s why you will often work with a team from very impressive backgrounds.
If that’s intriguing to you, then RX might be a good fit.
RX is Not What it Seems
One of my favorite questions RX interview questions is deceptively simple: What kind

of analysis do we really do here?
In a traditional M&A interview it’s a very simple answer: “Well you normally will look at
comps, precedents, and a DCF (assuming it’s a reasonably established company).
You’ll then tie these together and present them as a ‘football field’.”
In RX the analysis is much more ill-defined. You’re looking at capital structures that in
the quite near term are breaking to the point the company will likely be bankrupt if
something isn’t done.
…When a company is near bankrupt, do we really care about the enterprise value
(EV)? Well, sure, it can’t be entirely ignored. It’s necessary to know that the going
concern of the company is worth more than its liquidation value (which is actually a test
done in Chapter 11 by the court, because if liquidation value is higher than a Chapter 7
should be done as that’s in the best interest of the creditors).
RX relies on a deep understanding of finance, on being able to read financials, but then
on also looking at ratios, underlying term sheets, and then presenting a financial
engineering solution to keep the company afloat. Yes, you want to know how much the
company is “worth” to a certain extent. For example, you need to know what areas of
the capital structure are impaired (not going to be made whole) if negotiating with

current creditors. However, we’re really dealing with an immediate crisis in the capital
structure where concerns about valuation are important, but secondary, to finding
solutions that can come together as quickly as possible.
Likewise, comparables and precedents mean something entirely different in RX. In RX

they mean, “Hey this other company with a similar capital structure did this kind of
restructuring solution! Let’s see if that works here.”. That company could be in an
entirely different sector and it doesn’t really matter. All that matters is that the capital
structures look similar (similar forms of debt, similar sizing, etc.).
The kind of analysis largely done can really be boiled down into: projecting cash flows
(cash available to the firm) and how that covers, or not, the obligations that the
company has (within the capital structure). Then how - if you add debt through some
kind of exchange, or extend maturities while increasing the coupon rate, etc. – that cash
can readily pay down the cash interest in the capital structure you’re creating and avoid
a Chapter 11 (in-court restructuring).
The point is we don’t care about long term value in the traditional, hyper-analytic way.
We assume – if the firm is a restructuring target – that a DCF doesn’t make a ton of
sense. Why? Well, if a firm is near bankruptcy in the near future what would you assign
its terminal value (the value of the firm from five-years out to infinity)? What is the EV of
a firm that will probably be bankrupt if not restructured?
Remember: Restructuring investment bankers are in the business of ensuring that the
company survives in the short-term and can thrive under some new capital structure.
Why would RX bankers, given this priority, care about the actual hypothetical value of
the company to some precise approximation? It would be like trying to calculate the
market value of your home while one room of it is on fire – the first priority should likely
be to put out the fire and worry about valuation later.
One caveat to this is distressed M&A. This is not overly common in practice – in an
analyst stint at a top bank you may not even see one or two of these transactions – and
it usually gets some traditional M&A guys involved in it.
RX is an extraordinarily broad field. There are Chapter 7s, 11s, 363 Asset Sales, out-of-
court restructurings, and many permutations within each of those categories.
One thing many young people do not realize – because of the slant of academic books
– is that most RX work happens out-of-court. In fact, that’s much easier for everyone
involved! Incidentally, it also means that fees do not have to be court approved, which is
a bonus. One of the quickest ways to determine whether someone really knows about
RX is to see if they talk purely in terms of Chapter 11 and Chapter 7 scenarios. If they
do, then they don’t quite grasp what RX really is all about.
While I have developed questions that will make sure you understand what each of
those are, I’m not going to go into them in great depth. You’re looking to have a basic

lay-of-the-land, succeed in an interview, and be able to handle the job in the first few
months; I don’t want to bog you down with the mechanics of how a 363 works in
practice as it simply will never come up in an interview (although feel free to ask me
about it!).
Note: Thus far I’ve used some terminology that may seem a bit clunky and confusing to
you. If you are not fully following everything I’ve said, don’t worry. When you go through
all the Q&A each term I’ve used will be clearly, practically defined. You can then come
back and read this report again and things will “click” better, if they aren’t currently.
RX Shops (Rankings & Size)
In a previous section, we talked about why BBs do not have “traditional” restructuring
practices. Instead most RX shops are housed within smaller advisory shops, most
prominently in the EBs.
The reality is, because of the much smaller class sizes for RX, getting a job at any RX
firm that gets mandates will get you interesting exit opportunities. However, since I know
I’ll be asked, I’ll do a rough ranking by tier.
Folks will disagree, of course, with what firms deserve to be where, but I think the
following tiers would be more or less agreed to by most.
Tier 1: PJT, Evercore, Houlihan Lokey (HL), Lazard, Moelis
Tier 2: Rothschild, Centerview, PWP, Jefferies, Ducera, Gugg
Tier 3: Miller Buckfire, Greenhill
Note: This list is not comprehensive and there are some smaller shops that –
depending on the year – can do very well. It’s also important to note in RX league tables
provide even less clarity than in M&A. Fees – which is ultimately the measure of import
– are not linear to the liabilities that have been reworked. Fees can be greater on a
capital structure involving a complicated scheme that fundamentally changes the
company, then on simply re-working a TL1 or TL2 (even if the notional value of the term
loan is larger).
On average, the shops mentioned above will all take between 3-10 summer interns.
Normally RX shops hire more full-time analysts than they do summer analysts (same is
true for associates), because the work is a bit more difficult to get up to speed with and
summers provide less value (e.g. there’s less formatting of slides that anyone can do
within a week of being on the job).

As should be obvious, RX is traditionally much harder to break into than the collection of
top BB M&A groups because the class sizes are just so much leaner.
A Note on Creditor / Debtor Situations
In RX you can advise either the creditor side (those who hold the debt) or the debtor
side (the company that issued the debt), of course.
As you likely already know, some firms have a slight speciality toward one-side or the
other.
For instance, PJT and Evercore are more frequently seen on the debtor side while HL is
more frequently seen on the creditor side.
A common interview question is whether or not the RX shop you’re interviewing with
favors the creditor or the debtor side.
You should be cognizant of this being a slightly tricky question. All firms listed above will
handle mandates on either side, they just may deal with one side relatively more often.
So don’t tell PJT they deal only with debtors, as that would be entirely incorrect.
RX Exit Ops
When becoming a new analyst or associate in any area of banking, exit ops always
need to be considered. Banking hours are invariably long, stressful, and may not be
compatible with you forever.
With traditional M&A banking that’s perfectly fine. You don’t need to go on to a swanky
PE or hedge fund. If you want a lower salary, more flexibility, and the ability to settle
nearly anywhere you want you can go get a good corporate development role.
However, in the world of RX you develop a very specific skillset; highly valued among a
small minority, but just not overly relevant to the vast majority.

It is hard – though not impossibly, of course – to leave the world of high finance when
you’re in RX. When you’re in traditional M&A, as already mentioned, it’s not only easy,
it’s what the majority end up doing.
Most RX bankers will follow one of two paths: staying in RX banking (either in the same
firm or lateralling to another) or moving to the buy-side.
In M&A not leaving banking after two years can create a bit of a stigma. People will
wonder whether or not you got exit ops or not. If not, why? If yes, why stay in banking?
In RX it’s not at all uncommon to stay for two, four, or six years and then move to the
buy-side.
Many like the advisory component of RX banking and opt to stay in it. Going and getting
an MBA or JD is almost never required and most firms are open to you sticking around
for longer (PJT is the one exception where staying only two-years is by and large the
expectation, as of this writing).
Outside of staying in RX banking, the vast majority funnel their way into the buy-side. As
mentioned, leaving to corporate development rolls, start-ups, etc. is really quite rare.
There are two broad buckets when it comes to buy-side exits for young RX bankers:
distressed firms and traditional PE or hedge funds.
Generally speaking, PE or hedge funds (that don’t specialize in distress) are not overly
keen on RX bankers. This is primarily because RX bankers haven’t had exposure to the
normal processes of doing M&A transactions for healthy companies and all the
mechanical attributes that come along with it (the types of models, the data rooms, etc.).
These are just not things RX bankers deal with day-to-day.
However, occasionally you will see RX bankers make their way to more traditional PE
shops. Almost always top-tier ones like Blackstone or KKR. Occasionally you’ll also see
RX bankers move to top hedge funds (not in their distressed unit, if they have one) like
Baupost.
As you would expect, however, the vast majority of those in RX move to distressed or
special situations PE or hedge funds.
Note: When I say PE funds, I’m referring to the credit arms of PE funds, for instance at
Carlyle or KKR.
This should lead you to the question of…

What Exactly Are Distressed Funds Anyway?
While this is a guide meant to help ace your RX investment banking interview, it’s worth
taking a moment to talk about what distressed debt funds really are. Especially since
you’ll spend much of your time as an analyst or associate dealing with them.
Like everything in RX, it’s a tad bit complicated.
First, let’s create two separate buckets. Broadly speaking distressed funds are either:
credit arms of private equity funds or what I’ll refer to as pure distressed debt hedge
funds.
Many private equity funds (KKR, Blackstone, Apollo, TPG, etc.) have credit investing
arms. These firms, because they’re good at raising funds as they do it often for PE, will
invest in credit up-and-down the capital structure in both distressed and investment
grade companies.
One of the ways in which you’ll deal with these funds (as an analyst or associate) is
perhaps best illustrated with an example:
Let’s say that you’re dealing with an over levered company that needs to re-work its
capital structure. Perhaps you’ve come up with the idea of retiring their current secured
Notes (meaning bonds secured against some collateral) and issuing a new 2L (meaning
a second lien term loan) facility.
Who will finance the new 2L facility? What traditional lender would want to touch it given
that you’re doing a restructuring because of financial strain?
The answer is distressed debt funds. Those who you will often look to first are those
with the biggest pool of capital who like participating in new issuance (like the credit
arms of PE funds).
The second bucket, pure distressed hedge funds, have some cross over with the PE
fund’s credit branches. Indeed, you may very well send inquiries to some of the larger
funds about participating in the above scenario.

However, these purely distressed debt (or mainly distressed debt) hedge funds will be
much more active in actually buying the existing underlying credit of companies that
they think are undervalued because they believe a beneficial restructuring will take
place. Or they’re interested in buying up part of the capital structure because they think
a Chapter 11 will occur and they think they’re in an ideal situation to be made whole or
get lots of the reorganized equity. Or they will be interested in buying CDS on names
they think will falter under the pressure of their capital structure (with no out-of-court
resolution).
As you can tell, the main differentiating line that I would draw is that what I’ve called
“pure distressed funds” are taking smaller, more aggressive positions. They are less
likely to be interested in dedicating $40m to a new 2L position (that will be priced at
maybe just L+500), but more interested in taking bets that will involve longer
timeframes, more fighting, and far greater returns.
While it’s impossible to give a truly comprehensive list, here’s a taste of some of the
distressed debt funds that fit the above two definitions. You can Google them and
perhaps get a glimpse into some of the deals they’ve done (although, in RX, things are
much opaquer as not every deal ends up being public).
Anchorage
Angelo, Gordon, & co
Apollo
Appaloosa
Ares Capital Management
Aurelius Capital
Blackstone Tactical Opportunism
Bluemountain
Brookfield Capital Partners
Bain Capital
Brigade Capital
Contrarian Capital
Centerbridge
Cerberus
Davidson Kempner
EIG Investment Management
Elliott Associates
Fortress Investment Group
Fir Tree
Goldentree
GSO Capital (BX)
GS MBD Private Credit
Highbridge Capital Management
Highland
KKR

Marathon Asset Management
MC Credit Partners
Monarch
Oaktree
Och Ziff
Paloma Partners
Paulson
Riverstone
Tennebaum Capital
Third Point
TPG Capital
TRT Holdings
Silver Point Capital
Solus Alternatives
Whitebox
WL Ross
York
While the AUM of these funds in general – and the amount they dedicate to distressed
and the risk appetite they have – differs, they all have dedicated some reasonable
amount towards distressed activities over the last five years and look to hire those
coming out of RX investment banks.
By way of example, here is a recent interview from March 26, 2020 on Bloomberg with
Bruce Richards of Marathon Asset Management (listed above). The whole thing is worth
a listen, but go to 2:11 where he begins talking how “our playbook”.
He continues as follows, “…Our playbook is to buy the performing assets at deeply

distressed prices. To buy senior in the capital structure; what we consider to be above
the fulcrum for [those] companies we believe that have more risk so we’re in the safe
part of the capital structure. So we’ll have a par recovery at very deep discounted
prices.”
What Bruce is saying here – in layman terms – is that they’re interested in going in and
buying securities in the secondary market (i.e. not participating in new issuance) quite
high up in the capital structure. So likely focusing on term loans (TLA, TLB, etc.) or
senior secured notes. Their strategy is to buy TLs and senior secured notes at
distressed prices only if they believe that they will get a par recovery if there should be a
Chapter 11 (because they will not be an impaired class, but rather made whole due to
asset coverage). A fulcrum security is the first security in the capital structure that’s
impaired (not made whole).
What Bruce is articulating is not necessarily the strategy that many of the distressed
funds listed would be interested in. That doesn’t make it a bad strategy at all, just
different. For example, Elliott has a more active bend. So, they are likely looking at
opportunities to buy in what they consider to be impaired classes so in the event of a

Chapter 11 they then have power to dictate more what the company will look like upon
exit from Chapter 11 (perhaps by developing a blocking position, so they can block the
Plan of Reorganization).
Note: Once again, if some of the terminology flying around is confusing, don’t worry.
Soon we’ll be getting to the RX 101 section where it’s all explained (plus you have 500+
questions / answers that explain all of this.
Chapter 2: RX in Context
How to Nail the RX Interview
Let’s start fleshing out what your overarching aim is here: acing the interview.
You can break down any RX interview today into three primary components:
1. Traditional account/valuation questions
2. RX specific questions (about capital structures, deal structures, etc.)
3. RX banking in context
The third point may puzzle you, but as hopefully I’ve alluded to through some of the
questions I’ve posed earlier in this report, RX bankers want to make sure you know
what you’re really getting into.
This is particularly true in recent years as RX has become the top choice for top
candidates from top schools.
Here’s how we’ve designed this course to help ensure that you can tackle all three
primary interview components:
1. Traditional accounting and valuation questions that are asked are included in the
Accounting & Valuation Q&A report
a. Because of the unique nature of RX, only some of the valuation and
accounting questions you see in traditional M&A interviews are asked

2. RX specific questions can be found through the all the other reports found in the
members area. There are hundreds upon hundreds of questions to ensure you
know the concepts and language of RX banking
3. RX banking in context will be covered in this report, where we will go over the
day-to-day and deliverables expected of you.
So, let’s pull back the curtain a bit and talk about what being an RX banker is all
about…
Day in The Life
Look: banking is banking.
Given that you’re reading this course you’ve no doubt either already had an internship in
traditional M&A banking or have read enough other guides or forums to get the gist of it.
However, while you still have lots of pitch decks and Excel spreadsheets in RX there
are some notable differences that are worth keeping in the back of your mind.
At all EB RX shops you can divide your work into four main categories:
1. Screens
2. Profiles
3. Pitches
4. Live deals
There may be other things you do from time to time, like summarize where the general
bond market is for some MD, etc. but that makes up a vanishingly small part of the job.
…95% of the job can really be broken down into the four categories above.
One of the most frustrating part for interviewers is when candidates know all the basic
accounting questions, but you can just tell that they’re going to have no idea what the
deliverables they’ll need to produce are.
Before we discuss each of these four areas, however, we should first cover how MDs
go about getting deals brought into the firm (because you will have a partial roll in this).

How Deals Come In
There are two general ways in which an MD will bring in a restructuring deal:
1. The MD knows a partner at a sponsor (PE firm) and the partner reaches out
about a portfolio company they would like to re-work (meaning restructure their
capital structure)
2. The MD gets industry screens, has profiles built for him or her, and then puts out
a feeler to see if the company is looking for options to be presented to the CEO
about potential restructurings
Of course, there are other machinations, but this is generally how things work.
In the first scenario as an analyst or an associate you’ll just hear from the MD one day
that he wants to do a pitch for a company, and you’ll get busy.
In the second scenario you’ll be doing the grunt work of:
1. Doing an industry screen of all companies in said industry that you think are
approaching distressed levels (we’ll talk about what kind of characteristics to look
for shortly)
2. Having the MD pinpoint which specific companies he would like a profile created
of (a profile is going to be slightly more in depth then the screen)
3. You’ll then wait for the MD (sometimes days, weeks, or months) to call around
and see if said company would be interested in hearing a pitch
4. You’ll then create a small “deal team” for the pitch (usually one analyst, one
associate, one VP, and then the MD) and then usually just the MD and VP will go
and pitch the company

5. If you end up getting the mandate, then you have yourself a live deal (where all
those fees come from that keep the lights on)
As you can tell, this five-step process is a funnel. You start by casting a wide net,
quickly detailing a lot of companies that probably aren’t really in need of a restructuring
(which is frustrating, but that’s banking), then creating profiles of just a few of those
companies, then pitching a subset of those companies that want to hear from you, then
getting a mandate from an even smaller subset of those companies you (or rather your
MD) pitched.

Chapter 3: RX 101
When I began in RX, one of my associates (who went to law school prior to getting into
RX banking) gave me the following advice:
“My professor of contract law told us on the first day: every contract has more or less
the same elements, but every contract is different. The same is true in RX.”
How true that turns out to be. The devil is truly in the details in RX. That’s why
throughout this course I’ve tried to show you all the elements that go into RX – and the
context for how it all fits together – without getting into listing all the potential scenarios
you’ll see (because they’re innumerable).
What I want is for you to have an understanding of what you need to know, how to do all
the easies things, and then let you see all the little details on the job (since no one will
expect you to know all the special little details on day one).
In RX 101 we’re going to a quick dive into the practical world of RX. This is meant to
give you the context and background necessary to understand the hundreds of
questions you have access to.
How We Get to Distress
In traditional M&A a big part of the job is coming up with a story: how did the company
originate, how has it grown, why is it unique and special, etc.
In RX we also need to come up with a story: how the company got to the point of
distress.
Broadly speaking distress originates from having a capital structure that just no longer
fits and is too burdensome to carry around.

Hypothetically, a company with no debt can have their sales decrease continually
indefinitely so long as expenses are paired down in turn. But, of course, in reality large
companies have various forms of debt; paying different rates and having different
maturities.
An important point to understand, that you may even get asked in an interview, is: can a
healthy, fast-growing company become distressed?
The answer is absolutely! A company could be growing rapidly, have positive FCF, but
large tranches of debt coming due. A negative economic event of some kind could
happen, and credit markets could freeze up. Normally the company would have the
capacity to refinance debt coming due (since it can’t just repay the large principal
balance with cash on hand), but perhaps they can’t find takers for their debt offering.
Most of the time a distressed company won’t look like this, of course. Most of the time
the company has had either flat or negative growth, sluggish EBITDA and FCF, and the
market has grown increasingly pessimistic about the company’s ability to survive with so
much debt on the books.
An important point to understand is that distress, for all practical purposes, comes down
to the inability to refinance debt traditionally. Like I said previously, if a company has no
debt, they can kind of sluggishly limp along without much issue for years on end.
However, if you have a large capital structure you will have what are called “maturity
walls”. These maturity walls are when pieces of the capital structure (debt) come due
and all of a sudden you either need to a) repay the principal balance of the bond or loan
all in cash (most companies don’t have tens or hundreds of millions of cash sitting on
their balance sheet!) or b) issue new debt while using the proceeds to pay off the
principal balance of the old debt (re-financing).
When you’re building screens / profiles (to be discussed in detail later) a key thing you’ll
be looking for, and telling your MD about, are the maturity walls of the company. These
are the events where the company will have to come up with financing and if it can’t do
it, will need to restructure their capital structure in some way.
So how we get to distress most of the time is by butting up against maturity walls and
then the company not being able to just “roll over the debt” (meaning raise new debt to
“retire” the old debt).
A more specific question to consider then is: why would the company not be able to roll
over the debt? Why would people not want new debt issued by this company?
Here are a few reasons:
Limited liquidity

o Liquidity, for our purposes, means the amount remaining on the revolver
and the cash on the balance sheet
o Liquidity can be projected by just taking current liquidity for this year and
adding/subtracting the amount of FCF expected for the company next year
(this is called a liquidity roll forward, to be discussed later)
Blowing through covenants
o Almost all debt has certain sets of covenants; typically, the two most
important are leverage covenants (Debt/EBITDA) where the lower the
better and interest rate coverage covenants (EBITDA/cash interest
expense) where the higher the better
o Each piece of debt will set a certain limit for leverage ratios and a certain
minimum for coverage ratios; if a company blows through these covenants
the debt holders have the right to force the company into an involuntary
Chapter 11
o So, if a company is close to their existing covenants, people will be a bit
remiss to lend more money to the company lest they get forced into a
restructuring scenario soon
o Covenants can also preclude the company from placing more debt in the
same area of the capital structure as existing debt currently is (often
referred to as a “secured basket covenant”)
Credit rating downgrades
o If a company is downgraded by the major credit rating agencies (Moody’s
and S&P) then that will obviously make people generally uneasy to lend
o More importantly, if the company is downgraded from investment grade to
high yield that will preclude many traditional lenders from buying any new
issuance of debt (because their mandate is to buy only investment grade
securities)
So, for the purposes of RX banking, a company gets to the point of distress when they
butt up against an event in which the company must either refinance part of their capital
structure or restructure it because they can’t refinance it.
Just because a company isn’t doing well – maybe their stock has declined 90% over the
past few years – doesn’t mean that the company is necessarily in distress for our
purposes (since maybe they have minimal debt, maturating years from now, and have
enough cash to get them through a number of years). Restructuring requires a catalytic
event that will force the company to need to do something (whether it’s an out-of-court
restructuring or in-court restructuring).
Capital Structures

All of RX revolves around capital structures; understanding what they are, who owns
various pieces of it, and how to reconfigure them when the debtor (company) needs to
restructure.
Capital structures are represented by what are called “cap tables”. Cap tables are going
to be part of nearly every deliverable you create in RX; they’ll be in screens, profiles,
pitches, and live deals.
Cap tables are just a simple representation of capital structures; giving key details of
each part of the capital structure (e.g. maturity, coupon, etc.). Cap tables are discussed
in much length later on, and many examples are included, so we won’t belabor the point
here.
Let’s briefly talk about capital structures more broadly though. What they are, how
they’re composed, and what to watch out for.
Where to Find Them

Capital structures can be found in the 10-K and 10-Qs of any public company.
Sometimes they’ll be laid out quite well, so you can relatively easily slot them into your
cap table format (see examples for how cap tables should look), and other times you’ll
need to hunt around to find all the pieces.
Practically, what you’ll do is use BamSEC (which allows you to highlight and copy and
paste SEC documents easily) to find the elements of the capital structure. The most
important thing you’ll need to dig for are the unique terms associated with each element
of the debt, which will comprise the footnotes that accompany all cap tables.
For private companies – if you have no underlying documents for it – you’ll have to rely
on services like ReOrg, Debtwrite, S&P reports, etc. to see if they have written about
the company and put together a cap table of their own (as is often the case).
How They’re Structured

Every mature company will have some of the following elements.
Secured Debt (including revolvers, term loans (TLA, TLB, etc.), and secured
notes (bonds))
Unsecured Debt (bonds)
Subordinated Debt (bonds, below unsecured debt)
Mezz Debt (anything like convertibles, preferred stock, PIK paying debt, etc.)
Equity
Secured Debt

Secured debt is often issued by a bank and is usually, but not always, syndicated.
Syndication means that a bank will front the initial capital for the loan, but then sell off
chunks of the loan to third parties (hedge funds, pension funds, CLOs, etc.). This debt
will then sell on the secondary market and there will be active pricing for these pieces
(which can be found on MarkIt and, sometimes, Bloomberg).
Secured debt, as mentioned, is traditionally comprised of two distinct pieces: revolvers

and term loans.
A revolver (sometimes called a “revolving ABL”) is essentially like a credit card with a
certain limit (determined by the borrowing base). You can draw down the revolver at
anytime and pay it back whenever you want (either partially or entirely). However, unlike
a credit card, it does have a maturity date. A revolver sits at the very top of the capital
structure above everything else; making it the most secure and making it have the
lowest interest rate of anything in the capital structure.
Just like a bank issuing you a credit card assigns a certain limit to the credit card so too
do revolvers have limits. These limits are determined by the borrowing base, which is a
certain % (below 100%) of the most liquid assets of the company like inventory or AR.
The bank issuing the revolver makes a determination as to just how liquid the assets
are of the company and what the % should be to ensure that they have appropriate
collateralization.
Revolvers will often operate under grid pricing. You should be careful to look at the
footnotes of the financial statements of a company to make sure you catch this.
Grid pricing means that a revolver will be, for example, L+250-350 depending on how
much of the revolver is drawn at any given time. If only, for example, 20% of the
revolver is drawn the interest rate will be L+250. However, if 80% of the revolver is
drawn than the interest rate would “flex” to L+350.
Grid pricing is utilized to account for risk. If a revolver is heavily drawn that probably
means the company is having some cash flow problems (no different than a person
having cash flow problems and using a credit card heavily).
Term loans are loans given by traditional banks primarily and come in several varieties.
Often, it’s the case that the revolver and term loan were issued by the same bank. Term
loans, for large companies, are almost always at least partially syndicated so you will
have pricing on them (which is important for your cap table, as you’ll see).
Term loans are second in priority after only the revolver. If the company does not have a
revolver then the term loans are the most senior piece of the capital structure.
You’ll often see term loans referenced as either being TLAa and TLBs or sometimes
TL1s and TL2s.

There are no hard and fast rules as to the differences between TLAs and TLBs.
Generally speaking, TLAs will be issued by traditional commercial banks whereas TLB
will be offered widely (like bonds) and purchased on issuance from institutional
investors like mutual funds and CLOs.
TLAs will have more favorable rates, shorter maturity, and more amortization. TLBs
rarely have any amortization and little to no amortization.
Occasionally you’ll also see a company with more than two term loans, which will be
labeled alphabetically.
Let’s look at an example of a very large Secured Debt capital structure, courtesy of
TransDigm Group (NYSE: TDG). See their 10-K here.
Secured Debt
$760mm RCF
$350mm AR Securitization Facility
1L Term Loan E
1L Term Loan F
1L Term Loan G
Here you can see why practice makes perfect. It’s not obvious, at first glance, if these
are revolvers and why these term loans begin at E. What about A,B,C,D,..?
Here’s what’s going on: the $760mm RCF (revolving credit facility) is a revolver. Given
the amount of AR the company has, they’ve also got a $350mm A/R Securitization
Facility.
Because the company has so many short term, highly liquid assets the RCF and AR
Securitization Facility draw from two different borrowing bases (one draws, as the name
implies, from AR and the other draws from everything else that is short term and highly
liquid like inventory).
Here’s a question: is that AR Securtization Facility a revolver or a term loan?
To answer that look at the 10-K and you’ll see that they can draw from this facility and
pay it down; it’s not given to them in a lump sum and paid back in a lump sum. Thus, it’s
a revolver and so TransDigm has two revolvers.
Now they also have Term Loans that they call, in their 10-K, Tranche E, Tranche F, and
Tranche G. These are 1L term loans (meaning they have first lien on all the assets not
covered by the revolvers) and the reason there are no A,B,C,D tranches is that they
already existed earlier, but were retired.

Because they have multiple term loans going on it’s easier (so as not to confuse people)
to just continue down the alphabet.
Most companies will have a revolver and at most two term loans. TransDigm is the
exception to the rule. But pulling up their 10-K (or any company’s 10-k) and just seeing
how things are worrded will be helpful.
When it comes to making sure you are accurately describing capital structures, half the
battle is just understanding the different terms used to refer to the same thing.
For example, revolvers can be called either a “RCF”, “ABL”, or “Securitization Facility”.
They’re all revolvers, but just with subtle differences as to the underlying collateral
stemming from their borrowing base.
Note: You may see, in the press or in your day-to-day, discussions around levered vs.
unlevered loans. This is rather confusing terminology. All a levered loan refers to is a
loan with a non-IG credit rating.
Note: You can have secured bonds (referred to normally as “Secured Notes” or “Senior
Secured Notes”). All this means is that the bonds are backed by a certain set of
collateral. Just like regular bonds they have a fixed interest rate and no amortization. So
technically you could have a company with a revolver, multiple term loans (a TLA and a
TLB), and secured notes (bonds). In fact, many companies have exactly this set up.
Unsecured Debt
Secured debt is, as the name would imply, backed by collateral. Unsecured means
there’s a generalized claim on the assets of the company, but there’s no claim on any
one area of the company or hard asset. So, in the event of a restructuring, if the
secured debt is made whole, then the residual assets of the company will flow to the
unsecured debt because they’re next in line and have a generalized claim.
For example, if a company’s liquidation value is $400m and it has secured debt of
$300m along with unsecured debt of $200m then there will be a 50% “recovery” by
unsecured debt while the secured debt is made whole.
Unsecured debt comes in the form of bonds (which are often referred to in financial
documents at “notes”). Bonds are offered broadly, bought by a wide swath of market
players, and thus have more active trading than loans and revolvers. Bonds also feature
no amortization.
Bonds are generally of most interest (although not always!) to distressed funds as they
are most likely to be impaired in the event of a default. Impaired simply means they
aren’t made whole (like secured debt usually is) or get nothing (because they’re too far
down the capital structure). That puts them in a powerful position to be able dictate how
the company will restructure in a Chapter 11.

Unlike loans and revolvers, conventions are a bit more settled to what we call bonds.
Here are some examples, all of which would be unsecured debt:
4.750% Senior Notes

6.500% Notes
7.350% Debentures
o What bonds are called in Canada/UK most commonly
Note: If a bond is secured, the name of the bond will have “secured” in it (e.g. “4.750%
Senior Secured Notes”)
Unlike loans and revolvers, unsecured debt is not spread off of LIBOR. When a loan or
revolver is spread off of LIBOR (e.g. L + 250) we call this floating (as LIBOR changes,
so too does the obligation surrounding cash interest expense).
A bond just has a fixed interest rate, for example 4.750%, so the interest payment is
locked in and known with certainty.
Subordinated Debt
Subordinated debt is almost always comprised of bonds that simply rank lower than
secured and unsecured debt.
Most companies don’t have a separate subordinated debt area and thus most cap
tables do not feature it.
Mezzanine Debt
Mezzanine debt (mezz debt) is the lowest form of debt in the capital structure.
In reality, mezz debt is a catchall. It includes things that have debt-characteristics, but
are not clearly a bond, loan, or revolver. All mezz debt is unsecured.
Mezz debt includes things like convertible debt, preferred stock, PIK paying debt, etc.
All these instruments either have an equity component (convertible debt can be
converted into equity, preferred stock is equity that pays a dividend) or does not pay
cash interest (PIK debt pays interest in the form of more debt).
Mezz debt is usually very small in size compared to the traditional secured and
unsecured parts of the capital structure. It also is usually privately placed and therefore
highly illiquid (sometimes you’ll see convertible debt actively traded, but it still will be
quite small volume compared to other areas of the capital structure).

Note: In a cap table you’ll often put an “Other” line item at the very bottom for things like
capital leases, which can arguably be considered like mezz debt. Convention varies as
to whether or not to include it. Generally, it is if it’s reasonably large.
Equity
Equity just refers to common stock. This common stock is what you would find trading
on the stock market (if the company is public). Common stock is of almost no interest to
us as it almost invariably gets nothing in restructuring scenarios (with the exception of a
small nominal value “tip” sometimes).
Covenants and More

All loans and bond come attached with a series of covenants and other features that
limit what the company can do.
If certain covenants are violated, this can lead to those holding the debt (with the
covenants that were violated) forcing the company into what is called involuntary
bankruptcy (Chapter 11).
Understanding the covenants and other features of the debt in the capital structure is
incredibly important. Even when maturity walls are reasonably far away at first glance a
company can still need to restructure because of these covenants and other features.
What covenants and other features are tied to each revolver, loan, and/or bond varies
wildly. You can gleam some information on most of these features from the financial
disclosures of the company (10-Ks and 10-Qs), however most of the nitty-gritty details
are laid out in the debt documents (the actual term sheets underlying each of the pieces
of debt).
The easiest way to discuss this is by going through each of the primary categories of
debt you’ll see in a capital structure and discussing the covenants associated with each.
Revolver
Ratio Test: Revolvers normally have just an interest coverage test (EBITDA/cash
interest). For example, I was just looking at one that was 2.0x and the currently the
company was at 1.59x (which is getting a bit too close for comfort).
Revolvers do not normally have leverage tests (Debt/EBITDA). A good, tricky question
would be why does this make sense? Especially since leverage tests are used so much
for other areas of the capital structure.
If you think about it, why would those holding the revolver care that much about the
company adding more debt on? The revolver is the highest in the capital structure
having claim on all or almost all the liquid assets of the company (e.g. cash, A/R,

inventory, etc.). If the company goes bankrupt, the revolver will almost certainly be
made whole anyway (get back their principle amount) and if a company raises a bunch
of new debt then the company will have lots of cash (which the revolver has a claim
on!).
So, revolvers actually have one of the simpler covenant structures. Revolvers may
include language around restricted payments (can’t pay lots of cash towards some
activity, like paying down other debt instruments, if they don’t have lots of cash on
hand).
Term Loans
The primary concern of existing term loans is not having too many more secured
creditors who will also have a claim on the assets of the company. So, term loans insert
language around both ratio tests and credit facility debt.
Ratio Test: subject to interest coverage test (often the same exact ratio as what the
revolver had).
Credit Facility Debt: An example of this would be saying that existing and future
revolvers and all existing and future term loans must not be greater than $200mm and
up to 4.5x secured leverage.
Term loans want to make sure that the total amount of secured debt, and the leverage
at the secured level, do not get too high as this could impair recovery in the event of a
default (meaning the amount of secured debt isn’t actually covered by the collateral,
perhaps because the companies collateral deteriorates over time in value more than
expected).
Note again, just like with the revolver, that term loans don’t care about unsecured debt.
Because unsecured debt is behind them in priority in the event of a restructuring. What
they care about are those who are in the same secured class as them.
Notes
For unsecured debt, things get a bit more complicated. Here are some of the common
covenants.
Credit Facility Debt: For example, current secured Credit Facility Debt cannot exceed
existing levels plus i) $200mm and ii) borrowing base utilization of greater than 80%.
Unsecured debt wants to make sure that in the event of a default there’s not too much
secured debt (as then nothing falls to the unsecured creditors!). So, they put in
provisions ensuring that there can’t be too much debt added above them.

Junior Debt: Sometimes clauses will be included about how much debt (subordinated to
the Notes) can be added.
Ratio Test: Like all other classes an interest coverage ratio test is included. Since
interest coverage uses all of cash interest in the denominator it’s usually the same ratio
(e.g. 2.0x) for every class of debt. You also will find leverage tests for bonds as well
(Total Debt / EBITDA).
A Note on Cov-Lite
In recent years you may have heard of lots of Cov-Lite offerings. These are loan and
bond offerings with minimal covenants. These almost always pertain to financial ratio
covenants - like leverage – and less to debt/lien issuance.
As you can tell from above, a huge priority of holders of term loans and bonds is making
sure that not much other debt is housed around them that could impair their recovery in
the event of a restructuring.
Call Protection
When a bond is offered, there may be call protection embedded in it. So, for example, if
a bond sells at par ($100) as is most often the case if the debtor wants to, for whatever
reason, buy them all back they must pay $103 or some such number higher than par.
The reason why those buying bonds at issuance want this is that when they buy a bond
they are assuming they will get a certain desirable yield moving forward; so a way to
buy back the bonds, while giving yield enhancement, is by buying back the bonds above
par.
Spring Forwards
Spring forwards (also know as “springers”) are the most common feature you need to
be aware of and footnote clearly for your MD to see.
A spring forward was done in the next chapter (on screens) to make things clear, but
let’s give a quick example here.
You have Secured Notes due in 2022, but have other Notes below them that are due in
2020. The Secured Notes have a springing maturity such that if the Notes are not re-
financed significantly (leaving less than $10m left, for example) then the Secured Notes
maturity springs to 90 days before the Notes maturity (in other words, over two years
prior to when they would have otherwise matured).

Why would the Secured Notes put this in place? They are operating under the
assumption that if the Notes haven’t been re-financed by a certain date, then it’s
because the company is in a place of near-distress and can’t re-finance them. So the
Secured notes want to make sure they get re-financed or at least get first attention
before the Notes becomes due.
Conclusion
What we’ve just covered are the major things you’ll see in most capital structures. The
reality is that a revolver, bond, or loan can have just about any kind of terms that the
debtor and creditor agree to, so we can’t cover everything in one go.
However, what we’ve just gone over will give you much more than you would ever need
to know in an interview and will allow you to understand the screen and profile
examples I’ve done for you as well.
If the concepts are still a bit fuzzy, they’ll be entirely cleared up when you do the Q&A,
which goes over each of these concepts individually.
What We Can Do to Right Size
So we know what a debtor (company) in distress looks like, we know the dynamics of
their capital structure, so if we think they’ll need to restructure what can be done?
You can break down solutions into two categories: out-of-court and in-court solutions.
Out-of-court solutions involve the debtor approaching several creditors and coming up
with a solution for right-sizing the capital structure that will almost invariably involve the
creditors taking a hit.
Why would the creditors agree to this? Only if they think that in a Chapter 11(in-court
restructuring) they’ll get an even worse deal.
Out-of-court solutions are always what you want to start with when looking at a
company. In-court restructuring take longer, involve nearly every party in the capital
structure to a certain degree, and can get quite messy, quite fast.
Out-of-court restructurings don’t always work. Sometimes a company will try to right-
size via an out-of-court restructuring, but still are too big and need to do a Chapter 11 a
few years later.

An out-of-court restructuring can be incredibly creative, but always involve either
exchanging existing debt obligations for new debt obligations, extending out maturities
of existing debt obligations, or changing the money-terms of existing debt obligations (or
all three at once!).
Out-of-court restructurings, to be clear, do not need to involve every tranche of debt. So,
for example, if you have a revolver, two term loans, and five bonds in a capital structure
perhaps only one bond is the issue (because it matures soon and the company can’t
cleanly re-finance it) then that singular bond issuance will be the focus of the
restructuring.
If the company’s capital structure can’t be right sized out-of-court (either because of too
much debt or no agreement between the relevant parties as to what to do) then an in-
court restructuring will take place.
By in-court restructuring we really mean a Chapter 11 process. A Chapter 7 (full

liquidation) is obviously an option, but that’s not what restructuring investment bankers
are hired for as a Chapter 7 involves a U.S. trustee being appointed and liquidating the
company by the rule of absolute priority.
A Chapter 11 can take two forms: a traditional one (taking months up to a few years) or
a pre-pack (where everything is pretty much agreed to prior to filing, so it takes just a
month or two for a company to get through it).
Below is a diagram showing roughly how you can think about all of this:

Out-of-Court Restructurings
In out-of-court restructurings, the possibilities for how transactions can look are virtually
limitless.
However, the general idea is that we’re trying to accomplish at least one of the following
three goals:
Retire the existing part of the capital structure that cannot be simply re-financed
Provide adequate liquidity moving forward to ensure that the company doesn’t
find itself in another tough spot soon
Delever the capital structure as much as possible
While I’ve broken down the type of ways to restructure the capital structure into three
components, the reality is most deals will have pieces of all of these.
As an analyst or associate you aren’t really coming up with how a company should
restructure; that’s obviously the job of the MD. However, you are responsible for
creating the pro-forma cap table (what the cap table would look like if you restructured
the company a certain way) and showing how various ratios would change as well.
Even though you aren’t responsible for idea generation, you are responsible for having
an idea of what’s going on. If you’re looking to transition to the buy-side this is a skill you
will need to carefully develop.
Extension
As will be discussed shortly, when a RX banker goes and pitches a company they will
set out a series of “alternatives” (meaning solutions) to the capital structure.
One of them is almost always – unless the capital structure is a serious mess – an
“amend and extend”.
An amend and extend is simply amending the underlying docs to extend out the
maturity of the debt.
Remember just a few pages ago we stressed that the reason why companies become
distressed most of the time revolves around maturity walls.
So, for example, let’s imagine that we have a revolver, due in a year, at L+200 and a
term loan, due in a year as well, at L+400. If the firm is on relatively shaky ground, it
may be difficult to re-finance (meaning raise a new revolver and term loan to pay off the
existing ones).

An obvious solution is to not get into trying to do complicated exchanges or considering
a Chapter 11, but rather to just push out those maturities by a few years.
Of course, if the company doesn’t turn around in a few years, you’ll be back to square
one. But if the company can turn itself around – without having to worry about raising
new debt – then this could be a perfect solution.
Amend and extend transactions are commonplace and generally follow a similar format.
The revolver will be paid what’s called a “consent fee”, which is usually around
100bps (1%) but can be up to 200bps (2%)
The revolver and term loan will both be given “enhanced economics” meaning
increased interest rates
o The term loan is always given more, given where it is in the capital
structure, so for example you could increase the revolver by 1% and the
term loan by 2%
The term loan can be “paid down” so you give the term loan holder(s), for
example, 5% of the total amount outstanding in cash now
o So if the term loan was for $100mm then you would give them $5mm now
In exchange for all of this, the company gets two years tacked on to the maturity
of both the revolver and the term loan
Amend and extends work well for what they are: a way to delay maturity walls and buy
time for the company to get into a better place financially.
Essentially what we’re doing here is offering the revolver and term loan holder(s)
increased interest rates, money up-front (consent fee for the revolver and pay down for
the term loan), and in return getting the maturities pushed out.
Part of the benefit to the company is that this leaves alone the rest of the capital
structure (for example, the bonds) and doesn’t dilute equity. Of course, paying the “pay
down” and “consent fee” will cost the company cash immediately to do so.
Change of Terms
Change of terms can refer to a number of different things.
Remember that non-money clauses can be changed with 51% consent, so there is
room to clean up certain parts of the debt documents around non-money items if
needed.
One of the terms most common to change (which is a money clause!) is the type of
interest paid.

When a company gets into a distressed position often they’ll have negative FCF and will
be needing to draw on their revolver to keep the chains moving.
A good, simple interview question is: if a company is nearing distress and has negative
FCF, how can this be remedied?
The most obvious way is by adding PIK interest as opposed to cash interest. This way,
should the company not have sufficient FCF, the company doesn’t need to pay out cash
interest.
While this could be accomplished through a pay down (as we just talked about) most of
the time the way you get folks to change money terms is through an exchange into a
completely different security.
Exchanges
Amend and extends are relatively common. Change of terms, on their own, are not
overly popular as when RX bankers get involved in a company the company almost
invariably needs to quite significantly change its capital structure around.
Exchanges can take many forms, but at their heart involve retiring (or almost retiring)
one piece of debt by giving those current debt holders a new piece of debt (often with
some cash or equity as well).
The company wants to do the exchange because of any or all of the following:
The piece of debt is company due shortly and can’t be refinanced

The cash interest on the piece of debt is too onerous to handle
The leverage ratio is butting up against limits and the company needs to delever
The debt holders will want to do the exchange if they think the company will default and
their recovery value will be lower than if they do the exchange (even if that involves
them realizing losses now).
Often what will happen is that exchanges are done for bonds in conjunction with amend
and extends being done for revolvers and term loans if you have most of the capital
structure coming due at the same time.
Let’s look at an example of what an exchange would look like:
Imagine we have $250 on Notes that are unsecured that are expiring in the next year.
They’re trading down and a recovery analysis shows they would recover very little. Let’s
say, because the company wasn’t doing too great when the bonds were first issued,
that they have an 8% interest rate on them. That’s a lot of cash going out every quarter
on these bonds and perhaps that has led to there being a pretty negative FCF for the
company.

The company can approach the bondholders understanding:
The bonds are trading down

The company barely has the cash to pay these bonds and likely won’t be able to
moving forward, which will lead to a Chapter 11 if they aren’t dealt with
In the event of a Chapter 11 the bond holders won’t receive much recovery, but
likely all the equity of the company (since they’re the impaired class).
So, the RX bankers working on behalf of the company come up with the following
proposal: the Notes are exchanged (with at least 90% participation needed, so they are
retired) in exchange for $125mm in 10% PIK paying 2L Notes due five years from now.
The remaining amount ($125) is then equitized (meaning they get an equivalent amount
of equity).
What are we really doing here? Well we are retiring an old class of unsecured bonds
(the $250mm Notes) for a new class of secured bonds ($125mm). So, the current
holders only receive bonds amounting to half of their current holdings (so if they own
$10mm of bonds now, they’ll get $5mm of these new bonds).
This may seem like a bad deal but remember if the unsecured bonds have traded down
and a Chapter 11 is imminent the recovery value on these unsecured bonds may be just
$10 or $20 (out of $100). The rest of the “compensation” for the unsecured bonds would
be the equity of the newly re-organized company.
So, in this deal the RX bankers give the unsecured bond holders higher priority in the
capital structure, new bonds that give the company time to turn things around (given
that the maturity is five years away), plus they get half the current equity of the
company.
The company likes this because:
The company doesn’t file bankruptcy, so their equity isn’t entirely wiped out
It delays the maturity wall of the unsecured bonds by five years, giving the
company time to turn things around
The interest is PIK so the company will have more cash as it’s not paying
($250mm*0.08) per year in cash interest
It delevers significantly as you’re retiring $250mm in bonds, but only adding
$125mm of new debt.
The unsecured bond holders may go for this as:
They get a higher position in the capital structure that is secured

They get half the equity of the company now so if there is a turnaround, they get
lots of upside
They don’t have to deal with a Chapter 11, which is a major time sink.

Exchanges, functionally, are tenders. Current bond holders have the right to reject the
exchange offer and see what happens moving forward. However, in practice RX
bankers working with the company will work with RX bankers representing the creditors
(unsecured bond holders in our example) and try to come to some agreement. For
exchanges, you need near unanimous consent (90%) so it’s not easy to find this
agreement.
Ultimately, when it comes to out-of-court restructuring exchanges are almost always

discussed if not the primary objective of the company. This is because exchanges allow
for the biggest transformation of the capital structure out-of-court both in terms of
pushing out maturities, lowering cash interest, and lowering leverage.
In-Court Chapter 11
I should note at the outset that we won’t be going over Chapter 7 in-depth as it will only
come up in your interview in the context of you knowing the difference between Chapter
11 and Chapter 7 and it simply won’t be relevant to your job.
That’s because in Chapter 7 you have a full liquidation of the company. This is because
it has been determined – through a liquidation analysis – that the impaired classes
(those that will get some, but not full recovery) would be better off if the company just
liquidated and sold off all their assets than if they were to go through a restructuring.
In Chapter 7 a U.S. Trustee is appointed by the court and has the sole role of liquidating
the full assets of the company and distributing the resulting cash by absolute priority.
RX bankers are meant to help a company restructure, not have it liquidated, so there’s
just not much for a banker to do in a Chapter 7. Instead, let’s talk about Chapter 11.
First of all, many folks getting into RX banking (even when they’re first on the job) think
that the job really revolves around Chapter 11. As previously discussed, that’s not really
the case at all. Chapter 11 is certainly something that a RX shop will take on, but most
initial pitches will revolve around out-of-court restructuring possibilities.
In fact, exchange offers are often presented out-of-court and if enough folks don’t get on
board with it the company will file Chapter 11 and try to push the exchange through as
part of the Chapter 11 process.
Chapter 11 involves a company filing for bankruptcy protection – placing an immediate,

automatic stay on the capacity for debtors to collect – and gives the company the time
and space it needs to reorganize.

The Chapter 11 process is overseen by the court (usually in Delaware, as that’s where
most companies are incorporated) and involves the company coming up with a Plan of
Reorganization (POR) and finding out who the impaired classes are (those who will not
be made whole but will get something). Only those who are impaired classes get to vote
on the POR. If the POR is agreed to, then the company will re-emerge with their new
capital structure that has been agreed to by the relevant creditors.
There are two types of Chapter 11 cases you’ll see: pre-packs and “traditional” Chapter
11s. A pre-pack involves a pre-planned POR that has already been largely agreed to by
the relevant creditors (baring some small issues to iron out) prior to filing. This allows
the company to quickly emerge from Chapter 11 in only a month or two. In a traditional
Chapter 11 you’re starting from scratch and the process can take an extensive period of
time.
An important to thing to understand is that many folks believe that companies always
are forced into Chapter 11 by their creditors. This certainly can be the case and there
has been some high-profile cases of hedge funds holding CDS on companies and then
forcing them into technically defaulting because they breeched certain covenants in
their debt documents (this is called a technical default leading to an involuntary
bankruptcy under section 301).
The vast, vast majority of time, however, the company will file Chapter 11 voluntarily
and strategically. They’ll plan for filing and then draw down their revolver, stop paying
certain contracts and vendors, and generally hoard as much cash as possible prior to
going in.
In fact, sometimes companies that could see a plausible out-of-court restructuring

solution will look to file a Chapter 11 anyway.
Why would this be the case?
The primary reason is DIP financing. DIP stands for Debtor in Possession and it’s what
we refer to the company that has filed a petition for bankruptcy. DIP financing is a
special type of financing, only available to those who have filed, that has super-priority
over all existing elements of the capital structure. Roughly 70% of the time this DIP
financing comes from those who have already given the company loans.
DIP financing is generally very safe as it has so much collateral backed up against it
and it comes with some very restrictive covenants.
In all Chapter 11 cases there are four primary steps:
Restructuring of the debtor’s operations by asset sales and contract assumptions

and rejections
The development and dissemination of a proposed plan (the POR)
A vote on the plan by the claim and interest holders (the impaired creditors)

Confirmation of the plan by the bankruptcy court
The only difference between a pre-pack and traditional Chapter 11 is the POR will be
agreed to largely prior to filing. In a traditional Chapter 11 the plan must be submitted in
120 days (unless the court grants delays) and the period to gain acceptances is 180
days.
Two valuation tests are also done: liquidation analysis and going concern enterprise
value (EV).
Liquidation analysis is done to see what the company would be worth (hypothetically) if
you just sold off all their assets as you would in a Chapter 7. If the value of liquidation is
greater than the going concern EV then it would be in the best interest of everyone to
just have the company liquidated (this is technically called “the best interest test”).
The going concern EV test is also done to determine who the actual impaired classes
are, because that is an essential element of the POR (as it determines who can vote for
it).
The POR must contain the following five sections:
1. Plan must designate classes of claims and classes of interest (e.g. must provide
a detailed cap structure).
2. Plan must specify any class of claims or interest that are not impaired under the
plan (e.g. classes that have full asset coverage and thus will not get to vote)
3. A plan must specify the treatment of any class of claims or interest that are
impaired under the plan (e.g. what are you offering them in the re-organized
company upon emergence from bankruptcy if they are impaired)
4. It must provide the same treatment for each claim or interest of a particular class
unless by requisite vote holders agree to a less favorable treatment
5. It must provide the adequate means for the implementation of the plan (meaning,
the plan must be feasible).
To be very clear, because this is the most important thing to remember about PORs, is
that it’s all about determining who is impaired because they are the only ones that can
vote.
So those who are made whole (e.g. often revolvers and term loans) and those far down
the cap table who have zero coverage (e.g. often convertible bonds, etc.) do not vote.
This is because those at the top of the capital structure have no right to complain; they
are made whole! Those at the bottom of the capital structure, who are determined to
have a claim worth nothing, can’t vote because obviously they’d just vote no and try to
argue the company should be valued more highly and that they should then become the
impaired class!

It’s important to note that there are (not shockingly) lots of legal fights over how much
the company is really worth in Chapter 11. This is because if the company is worth
$100mm then perhaps that means the Senior Notes are the impaired class, but if the
company is worth $200mm maybe the Senior Notes are made whole and the
Subordinated Notes are deemed to be the impaired class. So obviously the
Subordinated Notes will fight aggressively for a higher valuation.
Since the company is obviously not actually liquidated – like in Chapter 7 – there’s no
way to know for sure. So fights over what the true value of the company is take place.
With that said, assuming fights over proper valuation are done or do not occur, impaired
classes then must vote on the POR. For the plan to be accepted, 2/3 of the notional
amount (meaning dollar amount of bonds or loans who are impaired) and more than half
the number of individuals holding said bonds or loans must agree.
So what you’ll see are many distressed funds taking a “blocking position” by buying up
33.4% of what they believe will be the impaired class. This gives them negotiating
leverage to get what they want out of the company, because they can stall out the
whole process. In rare circumstances if just one of the impaired classes do not approve
the plan (perhaps because of a distressed fund blocking) a judge can “cram down” the
hold out in order to get the POR approved.
The court will also consider the “feasibility test” which basically says, “does this POR
involve a restructuring of the capital structure sufficient to ensure the company won’t
have to file Chapter 11 again.”
The restructuring of the capital structure in Chapter 11 can be incredibly varied.

However, it will often involve a very significant delivering and the issuance of all (or
almost all) common stock to those impaired classes. So the existing equity holders (and
everyone, including debt holders, below the impaired class) are wiped out.
For example, the typical pre-pack POR will do the following things:
Obtain new exit financing from banks (primarily DIP loans)

Reinstate or repay old bank loans
Reinstate trade creditors
Reinstate leases and other executory contacts
Issue 90 and 95% of common stock to former bond holders (they may get pieces
of new debt issuance as well)
Issue 5-10% of common stock to former junior creditors, former preferred
stockholders, and/or former common stockholders
If there is litigation pending, set up and finance a litigation trust and give the
common stock a small participation in lawsuit recoveries, if any
Issue options on 6 to 12% of the common stock outstanding to management to
incentive them to stay around (despite probably having lost a great deal on their
prior stock holdings in the company)

One thing to keep in mind about the Chapter 11 process – from the perspective of a RX
banker – is that you aren’t involved in all of the details (or even most of them!).
Lawyers and valuation experts play an incredibly large roll. While in an out-of-court
restructuring, the RX bankers are at the forefront of everything, in a Chapter 11 they act
more as a consultant on the whole process. Keeping the company (or the creditors, if
it’s a creditor mandate) abreast to where things are and how things are moving.
RX bankers really set the strategy and keep aware of where everyone is in the process,
but an incredibly large part of the Chapter 11 process is handled by others outside the
bank.
Conclusion
What RX 101 has hopefully given you is a general understanding of how we think about
the capital structure and the types of restructuring deals that come through the pipeline.
The Q&A reports that go along with this course have much more nitty gritty details that
will help round out your education and really make you stand out in an interview and on
the job.
In the next chapter we’ll be diving into the actual deliverables you’ll be completing on
the job. This will help solidify how we show our thinking within the firm and to clients.
Note: You can have distressed M&A in two forms: out-of-court and in-court. Out-of-
court just means selling a company that’s not doing well and sometimes this is handled
exclusively by M&A groups and sometimes the RX team will be involved. For in-court
M&A sales it’s a 363-asset sale where a buyer purchases the asset from the distressed
company free of all liens and claims. It’s worthwhile knowing what a 363-asset sale is,
but it’s rare enough that knowing the definition I just gave you is entirely sufficient.

Chapter 4: Screens
Remember earlier than I mentioned there are just four things, as a RX banker, that will
take up the majority of your time:
1. Screens
2. Profiles
3. Pitches
4. Live Deals
One of the first tasks you’ll be given, and that you’ll have to repeat many times, is
creating a screen.
Most RX firms will have a folder with screens already done for certain industries
(industrials, healthcare, etc.). These screens will normally have anywhere between 10
and 20 companies listed in them that are worth “keeping on the radar” due to being
likely restructuring targets in the future.
One of the first things an analyst or associate will be asked to do is “refresh” or perhaps
create a fresh screen. So, it’s important you have a generalized idea of what an MD –
who will be receiving the screen – actually wants to see.
For a screen, the “deliverable” is just a pitch deck (made in PowerPoint, of course, with
all analysis done in Excel) with the following elements:
1. Cover Page
2. Summary Page
3. Company Screens
Below I’ve inserted a five-page screen that shows you what each of the elements of a
finalized screen in RX will look like.

The cover page is self-explanatory.
The Summary page will list all the companies that are profiled and give key numbers
that illustrate why they were included.
What you’ll need to include, at a minimum, are:
Company name
Ticker/owner (if private say what PE fund, if relevant, owns it)
Total debt
Total leverage (Debt/EBITDA)
Lowest trading tranche
Lowest credit rating (not corporate rating, but the rating of the poorest trading
bond)
Commentary (recent news that makes it a restructuring target; such as recent

downgrades, coverage ratio issues, covenant issues, etc.)
The actual screen page will just be a one-pager. On it you will include a “cap table”
along with sharing their LTM Adjusted EBITDA (if available), interest coverage ratio, and
their total liquidity.
A cap table is created by going through the financials of the company and creating the
cap table from scratch. Listing cash first and then going through the elements of debt
they have in order of seniority.
For a public company, it’s not too difficult as you can go to BAM SEC and search their
most recent filing. You can quickly navigate to wherever they discuss their capital
structure by searching for “secured debt” or “notes”.
For a private company, you can use a combination of MarkIt, Moody’s reports, ReOrg,
and DebtWire (to be discussed later) to flesh out their capital structure. Normally one of
these resources will share what their capital structure is.
Fleshing out the numbers in the cap table should be quite self-explanatory. Study it to
make sure it makes sense to you and feel free to ask any questions.
Face value refers to the book value (or in the case of a revolver, the amount “drawn
down” at the time of the 10-Q or 10-K being published). Market price for loans and
bonds can be found via MarkIt or Bloomberg (MarkIt is generally better for loans).

Market value is simply: Market Value = (MarketPrice/100)*(Face Value)
So, for example, in the first screen you’ll see the 4.5% Secured 1L Notes due 2022
have a face value of $380mm, market price of 71, and thus a market value of $270mm.
Coupon is simply the coupon associated with the notes (make sure to put L+ if you’re
dealing with a loan priced off of LIBOR as obviously LIBOR fluctuates). Cash interest
just takes the amount of the loan/bond times the coupon rate.
Credit ratings for both S&P and Moody’s are also listed.
Then you just need to calculate the interest coverage (LTM Adjusted EBITDA/cash
interest) and leverage ratios throughout the capital structure (Debt/LTM Adjusted
EBITDA).
Like everything in RX, the devil is in the details. Here are some things to keep in mind:
Many loans have grid pricing depending on how well or poorly the company is
doing. For instance, in the first screen example the revolver is drawn on
significantly and the interest rate associated with it goes up. So make sure if this
grid pricing does exist that you put the correct amount in the “Coupon” and
“Cash Interest” sections and footnote it.
Springing maturities exist as well for some companies. This means if a certain
class of loans or bonds do not get refinanced (paid back) then another class of
loans or bonds will have an earlier maturity date (which can create a potential
default scenario if these bonds now with an earlier maturity date can’t be
refinanced!).
If you’re dealing with a company with lots of capital leases (anything in the low
millions or more, in my view) you should include them in an “Other” basket as
I’ve done in the first screen example.
The longer a company has been non-investment grade the more terms and conditions
are attached to all of its loans and bonds. It’s important that you read the notes of the
financial statements carefully to ensure you’re using the right interest rates and
maturities.
The final section that must be included on this page is “Total Liquidity”. This is important
to include to give a sense of their cash runway viewed roughly independently from their
current operations.
Another way to think about why MDs want total liquidity is included, is that the number
basically says, “let’s assume we’re FCF negative moving forward, how long can this
company still meet its obligations by using their existing cash or revolver?”

Creating this is really quite easy:
If the company has a revolver, you include it as the top line item
You then take away the amount they’ve drawn (meaning used) of that revolver
You then take away any letters of credit outstanding (as these are cash
obligations)
You then have a total “Revolver Availability”
You then add back any cash or cash equivalents (meaning things that can be
very easily and predictably turned into cash)
You then take off any restricted cash (cash that has been designated for a
specific purpose and can’t be used for anything else)
You then have a total liquidity value
In totality, the deliverable you end up creating for your MD will be normally around 10 of
these one pagers. They take time and a lot of digging to create. Some will have letters
of credit (LoC) outstanding, some won’t. Some will have capital leases, some won’t.
Some will have public filings that make it relatively easy to get all the details, some will
not.
Sometimes it’ll be impossible to get perfect clarity on a company (for example, if they’re
private/private meaning a private company bought out by a PE fund). If that’s the case,
just include what you can.
Your MD will then look at your screens, make some calls, and perhaps then ask you to
create profiles on one or two of the ten companies you created screens for. Profiles are
slightly more in-depth, giving a bit more market commentary, etc. but are generally not
too much more work as you’ve already created the cap table (which is the hardest part).
Below is a five page screen (with three full examples for companies)…

Preliminary Draft – Confidential
Example Screen Capitalization Tables

March 2020
Summary
$ in millions
1
Example Company (NYSE: EX)

$ in millions
Current Capitalization
2
ABC Company (NYSE: ABC)

$ in millions
3
123 Company (NYSE: OneTwo)

$ in millions
4
Chapter 5: Profiles
Screens and profiles are going to be the bread-and-butter of all young analysts and
associates. They take a while to get the hang of making (because of all the nuances in
what to include and not in the capital structure), but they have a defined format, so we
can talk about them at length.
However, even you just understanding what screens and profiles look like will set you
miles ahead of the competition. Just knowing what ought to be included will be
incredibly impressive (in particular if you’re interviewing for a summer analyst/associate
role).
Remember before we talked about how MDs rarely have pre-existing relationships with
management, because most of the time C-suite executives have never had to
restructure a company.
Note: The exception to this is when a company in distress is owned by a PE fund so a

PE partner will call an MD and because the partner may have managed dozens of
companies, with a lot of leverage, they may know the MD well and have worked with
him or her before.
As a general rule, however, MDs are constantly looking for companies that are getting
near to needing to restructure. They want to get a little insight into these companies to
keep in the back of their mind.
The work product you’ll be handing to an MD is a two-or-three-pager that we call a

profile.
This profile actually tells you much of what you need to know to be prepared to answer
contextual questions in an interview. So, I’ve attached below an actual example of
exactly what a fully-fleshed out three page profile looks like most of the time.
Let’s quickly and crudely go over what the profile will include though:
Cover page
Overview page

Loan/Bond price action page
The cover page is self-explanatory and can be seen in the example below.
The overview page will roughly be broken down into three areas as shown:
Overview & Recent News Maturity Schedule
Bullet #1: What the company does. Here you’ll paste in the maturity schedule
you made in Excel.
Bullet #2: Recent news, from DebtWire or
Reorg, on why the company is in distress. It’ll show when the debt of the company
comes due (i.e. where the maturity walls
Bullet #3: More recent news, maybe on are).
S&P / Moody’s downgrading their bonds,
etc.
Cap Table
Here you’ll paste the cap table you made in Excel (just like for the screen). It’ll show
the cash on hand, secured debt, total debt, LTM EBITDA, and the terms of the debt.
You may also include an area for liquidity, which will be the ability to draw on a
revolver plus the cash available.
So, what are we doing here?
In the upper-left we will include five or six bullet points. One or two will just be general
overview of what the company does, which can be taken directly from the company’s
website.
The next four or five bullet points will make the case for why the company is entering
into distressed territory. These don’t need to be your views, they can simply be the
latest news from ReOrg, DebtWire, or S&P Global research reports that you go through.
Remember: When you’re doing these profiles it’s because the company has come onto
the MD’s radar somehow as a potential restructuring candidate (likely due to it being
part of a screen, but perhaps the MD talked to someone who brought it up). With that
said, profiles are usually created before a company is really ready to restructure; it’s just
to have a fleshed out understanding of the company to see how it progresses. This

profile will be stashed on a drive on everyone’s computer to access/update as the
months/years move on so it can always be looked at later.
For example, years ago folks would have done a profile on iHeartRadio, which just
exited Chapter 11 now and is doing a direct listing again (after discharging billions in
bankruptcy).
In the upper-right hand column we’re dealing with the maturity schedule. The maturity
schedule is simply an Excel graph that you’ll paste in form your PowerPoint slide.
On the y-axis will be millions (denominated in dollars or whatever the relevant currency
is) and on the x-axis you’ll have years (normally out around 6-8 years, but it can vary).
What you want to show are the debt maturity walls.
Debt maturity walls are quite self-explanatory, but they’re essentially points in time when
a significant amount of debt (bonds or loans) come due and because of the precarious
state of the company’s finances it’s unlikely that the company will simply be able to roll
them over (re-finance them).
Note: A lot of what you do is restructuring is thinking about ways to push out debt
maturity walls; usually by amending and extending.
So when you’re building out this maturity schedule, where do you look?
First, you want to do a quick look at BamSEC. If you’re unfamiliar this is a site that takes
the SEC disclosures of a company, and makes it easier to copy and paste them,
highlight them, make notes on them, etc. It’s a neat tool. You can then go and find the
capital structure of the company at present (most companies break this out, use search
terms like “capital structure” or “first lien” or “bond” to quickly filter your way there).
You can also go to MarkIt (discussed in a minute) or even Bloomberg to see if the
capital structure corresponds to what you’re seeing on BamSEC. BamSEC will be the
authority on this topic (obviously!), because these are the actual company financials. If
the debt offerings haven’t been syndicated, they may not show up on MarkIt or
Bloomberg – even though they should – because there’s no pricing data so the
algorithms don’t pick them up.
So that’s it for the maturity schedule. Once you see the example I’ve drawn up it should
be clear what’s going on. The important takeaway – from an interview perspective – is
that most of what you’ll be doing as an intern or fresh analyst is doing profiles and MDs
really want to see maturity schedules. If a company is awful, but they have no large
chunks of debt coming through they’ll probably be able to muddle along (and if they
can’t, they’ll probably be more apt to do a Chapter 7 – liquidation – than a restructuring
in- or out-of-court).

Moving on to the bottom half of the first page will be the cap table…
We already went over this a bit in the “screen” section, but let’s go over it again. It’s
important to realize that cap tables really are the central element to what RX bankers do
all day, so don’t glaze over them.
A cap table starts with the most liquid element then descends in order of absolute
seniority. At the top you have cash and cash equivalents, then secured debt, then
unsecured debt in all its permutations.
Then at the bottom of the cap table you’ll include EBITDA, the corporate ratings (from
S&P and Moody’s only), and the liquidity table.
The liquidity table refers to cash on hand and what can be drawn on a revolver less
letters of credit outstanding and less restricted cash.
For example, if you have $50mln in cash on hand and have a $200mln revolver (or ABL,
pick your verbiage), but that revolver has $50mln drawn on it then your total liquidity
available is $200mln (cash + total revolver – used revolver).
In the capital structure part of the cap table, you need to include a few columns along
with your rows (which are the listing for debt outstanding). You want to include:
The face amount (how much was issued)
The price of it (if it was syndicated, you can use MarkIt to find the price)
The market value (which is the face * price/100)
The coupon (for a loan, it will be L + some amount of basis points)
The cash interest (L + some amount of basis points * face amount)
The maturity (for example, Jan-24)
The YTM (sometimes included, sometimes not)
Ratings from the rating agencies
The book (face value) leverage and market leverage (market value of debt /
EBITDA) – if it’s a private company and you can’t find EBITDA leave this blank
You’ll do this for every piece of debt (loan or bond, secured or unsecured) in the capital
structure.

It may seem like a lot, but in reality, it’s pretty quick to get through. Make sure to include
any relevant footnotes around grid pricing, springers, or debt baskets if relevant.
Now, onto the third and final page of the profile.
This part is easy. Sometimes it won’t even be included, but I think it’s worthwhile to do
unless you’re told otherwise.
When a company that’s quite large issues debt (a loan or a bond) it’ll quite often be
syndicated and therefore trade on the secondary market.
MarkIt is a company that tries to aggregate all the bonds and loans on the secondary
markets and show where they are currently trading.
As you can imagine, this is something an MD is interested in seeing. If a company has

debt maturity walls coming up, with bonds or loans trading significantly below par, this
signals ill-health in the minds of debt holders and signals the likelihood that re-financing
of this outstanding debt will not happen.
Now if you’ve never worked in investment banking before, here’s an important thing to
be aware of that won’t creep up in your interviews: every investment bank has a
ludicrous color scheme whereby lines in graphs, fonts, etc. need to be color coded a
certain way.
…On your very first day you’ll be given a color chart that shows what should be colored
what. This is meant to ensure that all your pitch decks look “standardized” and will result
in MD’s frequently saying to you, “are you sure this is the [“insert bank name”] color
scheme” when you of course have steadfastly followed the color scheme.
Anyway, this is a long way of saying when you go to MarkIt they will provide you lovely
graphs of where bonds have traded over time. These are useless. Instead, you must
click the “download” button and download the last six or 12 months of day-to-day price
movement in the bonds or loans of interest.
You’ll open this in Excel and then re-create the chart using the investment bank’s color
scheme. It’s a pain (obviously).
You’ll create a graph showing where all the debt is trading. Not all the debt will be
traded, so obviously you pick from what MarkIt has data from. If you have 12 different
pieces of debt, then pick the most senior pieces of the capital structure available. I
normally included no more than four pieces of debt to graph (in descending order of
seniority), because if you have more than four lines on a graph it becomes cluttered.
Why do you pick the most senior debt to put in your nice graph? Well let’s think about it:
if loans (top of the capital structure and likely the biggest slug of debt) are trading at par
maybe they can refinance! If some tiny piece of unsecured are trading at 90 (90 cents

on the dollar), while the much larger piece of loans are trading at 99 (99 cents on the
dollar) then they probably won’t be likely to restructure as these aren’t meaningful
discounts given their position.
…However, if the top of the capital structure is trading at 80, quite distressed in 2019
markets, then one can reasonably presume that the unsecured parts of the capital
structure will be trading even worse.
Once you have created your nice graph in Excel, using all the appropriate colors (of
course), then you have paste that into PowerPoint on slide two and you are done.
With a cover page, overview page, and now price action chart you’ve now created your
entire profile.
Note: If this is all a bit jargon-y for you, it might be best to take a few minutes to read
the actual profile created here. From an interview perspective, it’s just important that
you actually know that you need to make profiles and what’s important to put on them. If
you have any questions, as always, feel free to just e-mail me. I’ve tried to thread the
needle here between giving you what you actually do on the job, while also not defining
every term and creating a 200-page report.

XYZ Company Profile

March 2020
XYZ Company
Overview Maturity Schedule
§ XYZ Company manufactures and distributes industrial chemicals for use by large
manufacturers
§ Operates in Canada, Europe, The United Kingdom, and The United States
§ Has drawn limited amounts on its $125mm revolver, but has large maturity walls in
2024
§ Recently downgraded by Moody’s to Caa1 after 2019 FY EBITDA fell by $20mm YoY
with flat FCF
§ Leverage ratios nearing covenants, which has been reflected in downgrades to the
L+925 2L issued in 2018
§ Limited further information from DebtWire, infrequent price action on MarkIt, and
limited holding lists on Bloomberg (throughout the capital structure)
Cap Table
1
Trading History
After trading near par there has been significant downward price action
Source: Marketit (03/28/20)
2
Chapter 6: Pitches
Let’s recap what we’ve done so far, hypothetically:
We’ve created a screen for a certain industry, finding 10-20 companies in a

certain industry that are likely to restructure at some point in the next few years
We’ve given this deck to our MD, who has then highlighted a few companies he
would like a profile done of, which we then do
The MD may then either reaches out to the company or simply wait for them to
become even more distressed
Eventually, it’s time to move. We have a meeting with the company and need to
create a pitch
A pitch is, as you would assume, really just a sales letter. It’s trying to show the
company that, “We know where you guys are now, where you are going in the future,
and here’s how we think we can make things better. Also, we’re very good at our jobs
and have done lots of transactions for similarly troubled companies.”
Because the potential restructuring outcomes are so broad, I can’t give you a step-by-
step for creating a pitch (because every pitch in RX looks quite distinct).
However, I’ll try my best to give a broad overview. First, let’s talk about the “deal team”.
Deal Team
For a pitch there will still be a deal team. That may sound like overkill but remember that
the pitch will be the jumping off point for a live deal if the pitch is successful and we get
the mandate.

Generally speaking, there will be an analyst, associate, VP, and MD on the pitch.
Sometimes there will just be an analyst, VP, and MD. Sometimes there will just be an
analyst, associate, and MD. It depends on how flat your RX bank is.
The MD will give the broad outlines for what kind of strategy for the restructuring he
thinks is best. The VP/Associate then tell the analyst the actionable items they want to
see and the analyst does the work (with quite frequent input from the associate and
occasionally the VP).
Pitches normally come together in a few weeks. However, they can be whipped up in a
few days if needed.
The Structure
Like I said, every RX solution (in terms of how you restructure a capital structure) is
generally relatively unique so I can’t tell you what every slide in a pitch will be. But I can
tell you the general layout.
A pitch deck will have between thirty and fifty slides.
The contents will generally be as follows:
1. Executive Summary
2. Situation Assessment of Industry and Company
3. Potential Restructuring Alternatives
4. Appendix
a. Additional Analysis
b. Case Studies
c. Qualifications
1. Executive Summary
The executive summary will just describe who the firm is, what big-name deals they’ve
done in the past, and then industry specific qualifications. For instance, if you’re dealing
with a restructuring in the healthcare space then you’ll have a slide about transaction
types done in the healthcare space.
2. Situation Assessment of Industry and Company

In this section you’ll talk about the broader restructurings happening in the industry then
include several slides dedicated to:
Key metrics of the company over time (graphs of revenue declines, margin
compression, same store sales (SSS) declines, etc.)
Cap table with maturity walls and liquidity profile
Debt pricing chart
Comparable companies chart (showing the EBITDA, leverage ratio, interest

coverage, and equity price change (if public) of comparable companies)
This section is meant to show the company that we understand where they are not only
internally, but also in the broader sector in which they operate.
3. Potential Restructuring Alternatives

This section will normally detail several different restructuring scenarios (obviously there
are many different permutations) and provide commentary on each one.
So the layout will be something like this:
Key issues around current covenants/liquidity & capital structure
Overview of three RX solutions (sections for: description, benefits,

considerations)
Overview of three RX solutions (sections for: timing, strategy, and key parties)
First scenario (sections for: terms, new cap table once complete, called a pro
forma cap table)
Second scenario (sections for: terms, new cap table once complete, called a pro
forma cap table)
Third scenario (sections for: terms, new cap table once complete, called a pro
forma cap table)
As a young analyst, a lot of the actual wording for the overview sections won’t come
from you directly. You’ll be given a run down, so you’ll know more or less what to say,
and then the VP/MD will mark it up to get their wording in there.
Writing down the terms of the RX plan and doing the new cap table will be done by you,
however.

So for example, maybe one of the RX solutions the MD brings up is paying down part of
a term loan (say it’s $300mm outstanding, and you pay down $30mm), increasing the
interest on it, and then extending the terms of it out. You would create a cap table that
shows the before and aftereffects of this (how much more cash interest is there, how
much cash is diminished in order to pay the term loan, etc.)
The final page of this section will discuss “next steps” meaning what the RX group will
do once engaged (further due diligence, evaluating alternatives, negotiating and
executing the plan, etc.)
4. Appendix
Every good pitch book needs an appendix.
Liquidity Roll Forward
In the additional analysis part you’ll often see a liquidity roll forward (a projection of
where liquidity will go next year). This just extends out the “liquidity” box that we always
put near our cap table (see the “screen” and “profile” examples above) by one year.
We will assume that the revolver gets drawn (or cash is diminished) by the amount of
decrease in FCF.
We make the projection on how much FCF will decline by just making assumptions
about revenue declines, EBITDA margin contraction, and capex spend based off of
what the company has done in the past year (remember, this is restructuring not M&A
so there is rarely an in-depth model for a one-year projection).
A liquidity roll forward is basically just saying: here’s how much FCF is declining next
year and how much cash and/or the revolver needs to be used up. Then what is the
liquidity left (cash + revolver) for the firm.
Debt Holders
Normally you’ll try to find out who the debt holders are for various tranches of debt and
what percent of the debt they hold. You normally do this for the top 10 or 20 holders.
This is easy to find via either Bloomberg or Advantage Data, both of which you’ll have
access to on the job.
Corporate Structure
If the company has a complicated corporate structure, you can put in a chart showing it
as well.
Case Studies

Most RX groups will have several case studies showing interesting and novel things
they’ve done in the world of RX. These will normally be 5-10 pages and will show what
the bank proposed as an RX solution, what ultimately happened, and what the timeline
was.
These case studies are filler mostly. But it is true they give a good sense of how
restructuring timelines work.
Qualifications
Here we have true filler. Every pitch book will have a series of slides (pre-done, you just
insert them) showing awards won, clients dealt with, and what MDs have contributed to
the pitch.
Conclusion
Pitches are always unique, because you’re presenting a series of potential RX

possibilities to the company and these will be contingent on what the MD thinks is
feasible.
Importantly, when I say feasible, I don’t just mean tolerable to the debtor, but also
tolerable to the creditors some of whom will likely need to give consent in order to do an
out-of-court restructuring.
Note: There are pitches for Chapter 11, of course, or distressed M&A deals. These will
be rarer than out-of-court restructuring for most RX shops. A Chapter 11 or distressed
M&A deal will be more singularly focused and will be more ad-hoc (in other words, you’ll
just be told as a junior analyst/associate what it should look like more directly) so we
won’t get into that here.

Chapter 7: Live Deals
We were able to discuss screens and profiles in depth, because they are almost always
the same. I’ve given you what every slide should look like and what should be included.
You now know – as well as any first-year analyst or associate does – what screens and
profiles should look like.
For pitches, I can’t tell you what every slide will look like, but I can tell you what 90% of
pitches are composed of. So now you have a generalized idea of what to expect when a
pitch comes your way (you’ll be on the job for at least a number of weeks before one
comes your way, so you’ll have lots of time to see real-world examples before starting).
Now we turn to live deals. Unlike M&A, there is simply no pre-set format for what the
timelines are, what the deliverables look like, etc.
Ultimately, this course is about trying to make sure you knock interviews out of the park
and are far more prepared for your first few months on the job than others.
…Taking 30 pages to scratch the surface on the kinds of live deals you’ll see, what their
permutations are, what their timelines are, etc. I think is going to make us lose the plot
here.
In RX, a live deal can swing drastically from day-to-day, because you aren’t engaged to
do a singular kind of restructuring (for out-of-court work). This may surprise you.
In the pitch above I mentioned how we’ll come up with three kinds of potential
restructuring actions. You may have very well thought that the company says,
“Hmmm… I like choice #2, let’s sign up the engagement letter and have you go and do
that for us.”
In reality, almost every out-of-court restructuring will involve needing to get the consent
of at least some group of loan/bond holders. It will also almost always involve some
raising of debt for a serious restructuring (even if you’re raising just to pay back some
other holders).
This means you need not only to get consent – perhaps from distressed funds looking
for a fight – but you also need to go to distressed funds again to potentially raise new

money for the company (as traditional lenders won’t touch the companies RX banks
deal with, generally).
So more often than not what the pitch really does is demonstrate competence and
creativity to the company. Then the bank is engaged and a long process unwinds.
For out-of-court work (the vast majority of what you’ll do on the debtor or creditor side
as a junior analyst/associate) the live deal process goes like this:
Your pitch was successful – in which you highlighted roughly three different kinds
of restructuring possibilities – and you got the mandate
Your MD then thinks more seriously about the best path forward (maybe it’s none
of the three possibilities previously mentioned!) and does a pitch book on that
The company agrees or disagrees to pursue this (which doesn’t mean it’ll
necessarily get done)
Your MD then enters into high-level (e.g. “30,000 feet”) discussions with a few
large creditors (to see if they’d generally agree with the proposal, if it’s something
like an exchange or priming where you need their consent) or a few large
potential financiers (who would be interested in financing what you’re proposing,
if adding on new debt)
If a general structure that seems promising emerges, then you’ll be creating a

sheet every week showing what firms have been contacted, if they’re an existing
holder, and how much they currently have (if any), and if they’re interested in this
structure
Once contact has been made then term sheets will be sent out (if we’re dealing
with new financing)
o Step 1: Teaser Sent (describing the transaction structure broadly)
o Step 2: NDA Sent / Executed
o Step 3: Financials Sent (more detailed financials and terms of transaction
sent to the counterparty)
o Step 4: Term Sheet Received (which will have terms for funding amount,
duration, interest rate, and covenants)
You’ll keep the company in question up to date on how many distressed funds
have gone through steps one to four.
The deal will “close” when you’ve had sufficient consent or new-money flow in to
actually do the deal (this can, of course, take some time and junior bankers
become less involved in the process)
For example, consider the following scenario.

You’re looking to partially re-finance some bonds by issuing a new term loan to lower
interest payments, lower leverage down the capital structure, and create a new swath of
debt that has a further out maturity.
In order to do this, you need consent from the bond holders. You also need to issue a
new term loan and have someone actually provide it to you (question: what kind of term
loan would this be? A TLB as it wouldn’t come from a traditional bank lender, but from
distressed funds). So the actual “live deal” process is having the MD talk to all of these
folks about terms they would find favorable, in sufficient quantity, to get the deal done.
In traditional M&A, the exciting bit is the actual live deal. In RX the live deal – after
you’ve decided on what the RX solution is actually going to be – can be a bit more
tedious. As a junior analyst or associate it involves largely keeping track of what
counterparties are saying (so you can update the company) and changing up the
analysis of what will happen to the capital structure, leverage ratios, coverage ratios,
etc. if the terms of the deal change. Because you’ll already have a “model” built (for the
cap table, pro forma cap table, ratios, etc.) this really just means refreshing the pitch
book by changing a few numbers around (L+600 instead of L+700, etc.).
Conclusion
If you have any questions about live deals, be sure to let me know. With that said, it’s
important to realize that “live deal” questions aren’t a part of restructuring interviews.
For instance, a good question to ask in an interview (especially for associates or for
those who have already had some time in M&A) would be: If you’re making a two-pager
on a potential restructuring target, what would you include?
You should immediately realize a two-pager is just a profile! So you would say
something like, “You would want a cap table, showing the full capitalization of the
company along with market prices, cash interest, and then leverage and coverage
ratios. You would also want to include credit ratings on all pieces of debt (if available)
along with a liquidity analysis/table. You should include some qualitative elements
covering recent news – downgrades, price declines, etc. – and a maturity wall graph
showing when a restructuring event is likely to take place. You may want to, on the
second page, just have a graph of where loans or bonds have traded down over time
(taken from MarkIt or Bloomberg).”
This would be a comprehensive, excellent answer.
However, you’re never going to be asked in an interview (even if you have years of
experience in M&A) to describe what should be included in a “live deal”. Because, as

you realize now, it would be a bit nonsensical. Live deals are too divergent for there
ever to be a singular answer!
On the extremely rare chance that you do get asked, you should recognize it as a bit of
a trick question. The banker probably wants to ensure you don’t give some formulaic
answer that shows you don’t really understand what a live deal is in RX. You should
simply state that all live deals are different, but they will have the common elements I’ve
just talked about including: a more exact plan for how the restructuring will occur, a plan
for counterparties to reach out to, and a ledger to keep track of who has responded and
what they’ve said. You should mention that the roll of a junior person in a live deal
usually ends up being refreshing the models as the terms change and keeping track of
who has been contacted and what they have said.

Chapter 8: Other Things You Need to
Know
What are the Tasks of a Summer or Junior Analyst /

Associate?
We’ve already covered a lot of this, but let’s briefly go over it again. Much of what is
discussed in interviews will circle around (indirectly) tasks that you’ll be expected to be
able to handle as a summer or junior analyst / associate.
In RX there isn’t an expectation that you’ll know every detail of what you’ll be doing at
all. For instance, an interviewee knowing what screens/profiles even are, never mind
what they involve, would be incredibly rare (which is good for you!).
However, it’s important that you know the general gist of what you’ll be handling.
For the summer, or your first few months full-time, you’ll be doing some of the following:
Refreshing a screen
o If a screen was last updated a year ago then prices of where loans/bonds
trade are out of date along with the LTM EBITDA, credit ratings, etc.
Refreshing just means updating and it’s very simple to do given that the
cap table is already done – you’re just making sure it reflects the current
reality.
Creating a new screen
o As previously discussed, you may be asked to screen an industry and
create nearly exactly what I previously showed you
Creating a profile
o Profiles are always being created and are a good task to give to junior
people since they can be wrong without it being the end of the world
(since they’re only for internal use)
Joining an ongoing pitch
o You may get slotted into a pitch that’s currently ongoing. Since the pitch
will already be active, much of the Excel and PowerPoint will be complete,

so you’ll be given specific tasks around updating it to reflect how the MD
wants to present it (perhaps coming up with a new structure, refreshing
the cap table to reflect most recent prices, aligning things differently in
PowerPoint, etc.)
It’s very unlikely over the summer – or your first few months full-time – you’ll be starting
a pitch from scratch or slotted into a live deal.
You may get roped into help out, but there will be either another analyst on it or an
actively engaged associate.
Just because you go into the group understanding what a screen, profile, pitch, and live
deal generally look like doesn’t mean that that is the expectation of the group, so they
won’t be thinking about slotting you into these kinds of tasks.
Your first few months will be composed of increasingly more engaging tasks to get your
feet wet. Since you’re going to be ahead of the curve, take this time to go into the
shared folders of the group and look at ongoing pitches and deals to see how things are
formatted and done to keep ahead of the curve.
Tools of the Trade
When working in RX there are a certain set of tools and resources that you’ll use that
are entirely unique to the field of RX. It’s worth knowing what they are so you can drop
reference to them (if appropriate, don’t overdo it) in an interview or just not be confused
as to how to use them when starting on the job.
CapIQ
CapIQ is used as a quick way to access financial statements (although for real work
BamSEC is used), find credit rating info, and run screen criteria.
CapIQ can be used to set criteria (size, industry, pricing, etc.) to find companies that are
most likely to be at or near distressed levels.
FactSet
Similar to CapIQ, FactSet can allow you to run screens to figure out what companies fit
the mold a MD might be looking for. FactSet is likely familiar to you if you’ve worked in
M&A, although it’s used in a much more limited setting in RX.
MarkIt

MarkIt will be one of your most utilized resources. It’s used to find bond and loan pricing
(Bloomberg can be used, but is not generally as reliable especially for loan pricing).
BamSEC
BamSEC allows you to access financial statements and easily highlight, copy and
paste, etc. It’s incredibly useful for quickly drawing out what you need for financial
statements.
You’ll spend a lot of hours CTRL+F’ing to find covenants in financial statements and
highlighting them for screens, profiles, and pitches.
Trace
Occasionally you’ll be asked to find the volume of bonds trading by your MD. Maybe
because he wants to show the company many distressed funds appear to be taking an
interest.
To do that, you use TRACE (run by FINRA).
The Deal
The Deal is a quasi-news / quasi-market-intelligence site that has a strong restructuring
section. You’ll likely search it before building a profile to see if anything has been written
about the company you’re looking at yet.
ReOrg
ReOrg is likely the best-known restructuring market intelligence service. They follow a
wide number of on-going restructurings or potential restructuring targets and write
extensively on them.
You will absolutely turn to ReOrg first when trying to build out screens, profiles, and
pitches.
You can get a taste for the kinds of in-depth stories they right here and here.
DebtWire
Similar to reorg. DebtWire provides both commentaries on current restructurings like
this and provides fact sheets that have helpful cap tables as well as you can see here.
PACER

For all your Chapter 11 legal filings needs. See here.
Conclusion
In your day-to-day, these will be the vast majority of the tools you utilize that will be new
to you.
All are quite simple to use and used for the specific purposes I’ve outlined above.
Books to Know
RX in practice requires a lot of dense reading: from legal proceedings to financial

statements.
While RX is quite a small community with few books written on it, there are a few books
written from the perspective of distressed debt hedge funds that are very much worth
your time.
As you know, I have provided you hundreds of questions and answers based on three
books in particular that I believe will give you an incredibly solid base of understanding
of RX both in theory and in practice.
While I’ve made it unnecessary to read these books cover-to-cover, they still are very
much worth their time. In fact, when you read them you’ll likely find it far more enjoyable
as you’ll understand the terminology and mindset from the outset.
The three books I’ve written Q&A out for are as follows:
Distressed Debt Analysis: Strategies for Speculative

Investors – Stephen Moyer
This is the Bible of distressed. You’ve likely heard of it before. Wharton uses it (in part)
for their aforementioned restructuring class.
Unfortunately, I think many people read Moyer and think that what he’s talking about
applies to the entire world of RX. For instance, Moyer focuses on Chapter 11
extensively. That’s important, but for an RX analyst or associate Chapter 11 cases are
quite rare to work on and rather tedious at that.

Out-of-court work is what you’ll primarily be doing, but you wouldn’t necessarily know
that prior to stepping foot in a RX shop by just reading Moyer.
Moyer provides fantastic coverage that doesn’t come across too dated despite the book
being published nearly two decades ago. Moyer also lays out important terminology that
you must know all in one book.
Distress Investing: Principles and Technique – Martin J.

Whitman
Whitman is a legend who wrote the most recent (2009) book on distressed that is worth
reading cover to cover.
Unlike Moyer, Whitman’s book is much more practical. Delving into stories, talking
about the practicalities of cap tables, and the arguments had out-of-court and in-court.
Whitman’s book doesn’t have the depth of Moyer’s. But what is left out, in particular for
RX banking, is not that important (at least for our purposes here).
A Pragmatist’s Guide to Leveraged Finance: Credit Analysis

for Bonds and Bank Debt – Robert S. Kricheff
Robert was an MD over at Credit Suisse focusing on high yield strategy. He’s written a
short, fast-paced book on credit analysis.
If you go to Amazon and look at the reviews, you’ll notice the first one moans about its
simplicity. Where’s the strategic insights? Where’s the algorithmic models churning out
price signals?
Sorry, that’s not what banking is. That’s not how high yield / distressed works in practice
whether on the buy-side or the sell-side.
I’ve been asked by a few people why I’ve included Robert’s book as essential reading
and done up an extensive Q&A for it. It’s because your role as an RX banker is really to
think about bonds and loans (bank debt) that is at or near distress.
Everything in RX comes down to sets of loans and bonds, how they trade, what their
covenants are, and if they’ll cause the company to end up folding. If you understand
how to think about credit well, then the only thing holding you back on the job is your
Excel and PowerPoint speed.
Robert has written the best book that doesn’t give you academic hypotheticals, but what
is done in the real world (even if it’s not as sophisticated as outsiders would think).
Others

There are some other books worthy of your time in the world of RX.
Quantitative Analytics in Debt Valuation & Management –

Mark Guthner
Much more buy-side focused as it deals with hedging and whatnot. Still worth reading if
you have spare time.
Leveraged Finance: Concepts, Methods, and Trading of High-

Yield Bonds, Loans, and Derivatives – Frank J. Fabozzi
Finance-related books written by academics are almost invariably off-the-mark.
Focusing too much on academic literature and not enough on the practical realities
faced in the markets.
Fabozzi is the exception. All his books are fantastic and worth reading. Leveraged
Finance is one of his most underrated books. Like all his books, it’s incredibly
comprehensive and I think is worth reading.
The Art of Distressed M&A – Nesvold, Anapolsky, and Reed

Lajoux
This is a fantastic book. Worth reading. But for our purposes not entirely relevant.
If you’re looking to compound your knowledge of the Chapter 11 process; learn more
about 363 sales; and understand how lawyers, valuation experts, and bankers intersect
then this is an exceptionally well-done book.
However, for our purposes, these aren’t incredibly relevant subjects. Perhaps in your
first year working in an RX group this is worth reading. The practical benefits it’ll give to
you prior to an interview or on the job is minimal to begin with. Still very well-done book,
however.
Corporate Financial Distress, Restructuring, and Bankruptcy

– Altman, Hotchkiss, Wang
This is a good book and Altman is one of the best academics when it comes to
restructuring. However, he is an academic so it’s practical benefit to you as a junior
person isn’t quite there.
Like The Art of Distressed M&A this is worth reading in your first few years on the job,
not before you even begin (unless you have lots of free time on your hands).

By way of example, Altman created the Z-score to tell whether a company is nearing
distress. Some hedge funds play around with it, I suppose. But in reality, it just doesn’t
come up in RX banking. Worthwhile to know about, it’s certainly impressive to more
senior people if you know of it, but it’s not something that must be known to do the job.
Conclusion
If you’re in a time crunch, there’s no need to read the books mentioned above. I’ve
provided you all the Q&A you need.
However, before beginning your summer of full-time roll in RX you should read through
at least the first three (of which I’ve used to inform many of the questions and answers
I’ve created for this course).
Where to Now
The aim of this report has been to make you dive-in to what restructuring is really like
day-to-day, while also not getting so into the weeds that you end up more confused than
you began.
Your next step, especially if you feel a bit overwhelmed, is to move onto the Q&A
reports and start drilling questions. As you move through them pieces will begin to fall
into place and you’ll have a much sounder understanding of what we’ve covered in this
report and why it’s been presented in this format.
Remember: Just knowing how to look at a cap table, what profiles generally include,
etc. puts you incredibly far ahead of the curve. For many interviewees RX is a black box
and it shows when they interview; now you have (hopefully!) a much better idea of what
to expect.
Also, make sure you review the cap table examples as they are critically important to
fully understanding the material. You may also want to print out the screen and profile
example I did up here for future reference. If you can explain everything happening in
them, then you have the practical understanding of RX to do very well not only in an
interview, but on the job.
If you have any questions at all, of course, feel free to reach out.

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RX Interviews:

As an additional note, the world of restructuring is immensely complicated. Deals cannot

Let’s get started.

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Welcome to the world of restructuring (hereby, “RX”).

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The Aim & Structure of This Course

The course is broken down into a few different PDFs:

• RX Interview Q&A: This report contains 143 lengthy restructuring-specific

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• Distressed Investing Q&A: This report contains 78 questions and answers

There’s a lot of information here, and for a good reason…

RX is the Most Competitive Job in Banking

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In RX, MDs Matter Even More

In RX it’s an entirely different story. There’s rarely a pre-existing relationship between

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Why Choose RX?

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If that’s intriguing to you, then RX might be a good fit.

RX is Not What it Seems

One of my favorite questions RX interview questions is deceptively simple: What kind

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Likewise, comparables and precedents mean something entirely different in RX. In RX

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RX Shops (Rankings & Size)

Tier 1: PJT, Evercore, Houlihan Lokey (HL), Lazard, Moelis

Tier 2: Rothschild, Centerview, PWP, Jefferies, Ducera, Gugg

Tier 3: Miller Buckfire, Greenhill

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A Note on Creditor / Debtor Situations

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This should lead you to the question of…

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Like everything in RX, it’s a tad bit complicated.

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He continues as follows, “…Our playbook is to buy the performing assets at deeply

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How to Nail the RX Interview

1. Traditional account/valuation questions

2. RX specific questions (about capital structures, deal structures, etc.)

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Day in The Life

Look: banking is banking.

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In the second scenario you’ll be doing the grunt work of:

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How We Get to Distress

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Here are a few reasons:

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Where to Find Them

How They’re Structured