Restructuring: The Hottest Group In A Cooling Economy
“Do you ever have one of those days? When you feel like you might just default at any second?”
-That Time I Hired The Restructuring Consultant to Restructure Me, Long or Short Capital
You’ve probably been hearing a lot about restructuring lately. With the economy cooling down (or crashing into a bottomless abyss, as some might argue), restructuring is one area that keeps heating up.
And with the toughest hiring market since 2001-2003, who wouldn’t want to work in a counter-cyclical group?
If You Would, Would You Walk Us Through A Typical Day, For You?
So what do Restructuring bankers actually do, and how does it differ from other what other investment bankers do?
The primary difference is that Restructuring bankers work with distressed companies - businesses that are either going bankrupt, getting out of bankruptcy, or in the midst of bankruptcy.
When a company’s business suffers and it starts heading down the path of bankruptcy, its creditors - anyone that has lent it money, whether banks, hedge funds or other institutions - immediately take notice.
A Restructuring group might be hired by a company to negotiate with its creditors and get the best deal possible, usually in the form of forgiven debt. Or they might advise a company on how best to restructure its current debt obligations either to get out of bankruptcy or to avoid it in the first place.
Another big difference is that Restructuring bankers must work within a legal framework - the Bankruptcy Code - and hence must have a more in-depth legal understanding than other bankers.
Why It’s Hot
You don’t need to think too hard about why Restructuring is so hot right now: bankruptcies were already up 18% in February of 2008, and they’ve likely risen more than that by now.
Businesses that sell primarily to consumers and companies that sell high-end luxury items are especially vulnerable to the current recession.
Oh, and casino companies laden with debt via the Leveraged Buyout boom of 2004-2007? Well, with Las Vegas tourism already down over 10% this year and airline terminal construction being canceled, you might just see a few of them hiring Restructuring bankers soon.
Banks have caught on, of course, and have been expanding their Restructuring practices lately. Moelis made waves recently when he hired 2 Restructuring Managing Directors from a middle-market firm, and other banks are following suit.
Debtor vs. Creditor
Broadly speaking, there are 2 types of work that Restructuring groups do: advising a creditor (or group of creditors) and advising a debtor (the distressed company).
You can think of these separate roles as buy-side (representing the buyer) vs. sell-side (representing the company trying to sell itself) advisory in the world of M&A (I realize this is not a perfect analogy).
Regardless of which side you’re advising, much of the work is similar - valuation, modeling (analyzing different debt structures) and presentations.
It’s not too different from the work you do in other areas of banking, but it tends to be more technical and finance/modeling-intensive, especially compared to something like working on IPOs, which is mostly about revising Word documents.
This is a controversial point, but most Restructuring bankers would agree that you get a better experience as a junior banker advising the debtor rather than the creditor.
On the debtor side, you get closer to the company and gain a deep understanding of its business and finances; you’re also more likely to gain exposure to other areas of investment banking, such as capital raising and M&A, because Restructuring deals often turn into desperate efforts to sell or raise capital.
This is not to say that advising the creditor(s) is “bad”; as I mentioned, much of the work is similar and you learn a lot about both finance and law doing either one.
One advantage of advising the creditor is that you get to build relationships with hedge funds and private equity firms that invest in distressed companies - and those relationships in turn can lead to good exit opportunities in the future.
What Analysts And Associates Actually Do
Again, the actual work you do is not worlds apart from the standard banking routine: valuation, modeling and presentations. Deals tend to be more involved and can extend over longer periods (witness United Airlines, which took 3 years - longer than most M&A deals), and that equates to a bit less pitching and more deal work, which is always a good thing.
You’ll gain more exposure to debt and the legal framework than your counterparts in M&A or Capital Markets would, but you’ll learn about fewer industries and companies simply because of the nature of your work.
Hours and lifestyle?
Please, this is banking. Keep your expectations in check.
Recently, Restructuring groups have been busier than ever, with hours worse than those of M&A groups simply due to the market we’re in.
The Top (Only?) Groups
Put aside that boutique vs. bulge bracket debate because bulge brackets simply don’t do Restructuring. There are 3 firms with well-known Restructuring practices: Blackstone, Lazard and Houlihan Lokey (HLHZ).
There are many other banks that have Restructuring groups - examples include Rothschild, Greenhill, Miller Buckfire, Perella Weinberg and Jefferies (from which Moelis “poached” his 2 recent MD hires). And Evercore and Moelis & Co. are both beginning to build their Restructuring practices.
But Blackstone, Lazard and HLHZ are tops in the field.
Even on multi-billion dollar, complex deals you see Blackstone, Lazard and HLHZ dominating the market with some of the other names here present as secondary advisers.
Since Blackstone and Lazard primarily advise the debtor, they are often viewed as the “top” Restructuring practices. Houlihan, while still strong, rarely represents the debtor on the largest, most complex deals.
How To Break In (Hint: It’s Tough)
Although Restructuring groups have been hiring more and more bankers at all levels lately, the total number is still small compared to the sheer volume of M&A and Capital Markets bankers.
So it’s certainly not easy to break in.
Some banks (Blackstone, for example) recruit separately for Restructuring and keep the Analyst class size very small (under 10). Others, such as Lazard, place you into Restructuring once you’re already in their generalist pool.
It’s tough to break in because of 1) the small sizes, 2) separate recruiting and 3) increased emphasis on technical skills, which few students have unless they’ve had previous banking experience.
You might try for one of the smaller firms’ Restructuring groups, but even those tend to have more rigorous and technical interview processes in place.
As I’ve been mentioning, Restructuring bankers work within a legal framework and have to consider legal issues that other bankers never contend with - so if you have the appropriate legal experience, it can be an effective way for you to break into finance.
Exit Opportunities
The skill set you gain in Restructuring is more specialized than what you’d get out of working in M&A or Capital Markets, but it also allows you to work at hedge funds and private equity firms that invest in distressed assets (there are far more hedge funds doing this than there are PE firms doing it).
Going to such a fund or a “Special Situations” fund (just another codeword for distressed investment opportunities) is probably the most common exit for Restructuring bankers.
That said, you can also go to any normal hedge fund or private equity firm as well; even turnaround consulting is a possibility. If you’ve worked for the “top” groups (Lazard or Blackstone), you’ll have a good shot at getting into the biggest funds out there.
Restructuring: Stay Hot In A Frigid Economy
In a poor economy, Restructuring is always the hottest area. Although it’s tough to break into and the total number of bankers dedicated to this practice is small, if you play your cards right you could gain a very specialized skill set as well as access to some unique opportunities.
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Tags: bankruptcy, Blackstone, Houlihan Lokey, investment banking, investment banking exit opportunities, Law, Lazard, Restructuring, understanding investment banking
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Great info, thanks. Could you talk a bit about what the impact of an economic recovery would be on restructuring groups? i.e. are they likely to be laying people off in a few years?
While an economic recovery would slow their hiring needs, they are less likely to lay people off in coming years because:
1) Much fewer hires in the first place - probably less than 500 restructuring bankers total in the US.
2) No one wants to be caught unprepared if another downturn or recession comes along and they don’t have the appropriate headcount.
A restructuring group would be more likely to shift people to other areas (e.g. M&A) if the economy improved rather than lay them off.
What are the opportunities, if any, that are available abroad to break into work in IB as an analyst coming out of Uni or for summer positions (in Hong Kong, Singapore, or London)?
Also, I have to echo some of the comments I have read about how informative and interesting your site has been to read.
That’s a really broad question, but basically all major banks have branches in the locations you mentioned and you should be able to work at them assuming you have the appropriate language skills (obviously for Hong Kong more so than Singapore/London).
The job is about the same regardless of where you go, but some of those places are doing much better than the US right now so you might find better work there.
If you want to go that route, you do have to apply separately and indicate a strong preference for those locations - otherwise they will just lump you in with everyone else in the US.
Thanks for sharing this information.
I understand that PwC or any other similar consulting firms provide financial restructuring or business recovery services to companies. Are their roles similar to the restructuring bankers mentioned here?
They do more with due diligence for restructuring deals rather than valuation / advisory work, but it is related.
What do you think of i-banking opportunities in Canada now that the market is getting destroyed in the U.S.? Are any of them worthwhile? How about restructuring/M&A advisory opps in Canada with big names such as Rothschild or Lazard? Worth moving to frigid Toronto or Montreal to jump on these?
A post or an email to answer these questions would be great, as I’m considering the move.
Thanks!
Canada is probably better, but it has still been affected by the downturn. Rothschild and Lazard are probably 2 of your better options because they are small and have good restructuring groups… both also hired even in the midst of the last recession.
Any issue with moving back to the U.S. later if you end up in a Canadian office (of an int’l firm) or is the experience still respectable enough that this is irrelevant in this type of environment, i.e. is the NY, London, or nothing rule something that should be set aside in a crisis like this?
In the current environment, “Take What You Can Get” is the preferred rule. It’s harder to move back to HQ later if you start off in Canada first, but it can be done.
Just about to start at a top law firm but ultimatly I want to get into banking (long story). I want to run my plan past you. I just read you article about braking into banking from law. My law firm are giving me an option to get into restructuring. And with restructuring having such a heavy legal side to it and with the economic downturn at the moment would it not be agreat idea for me to do a few years in restrcturing and then hopefully hop across to banking???
Yes, restructuring is a good idea if you want to eventually switch into banking.