Restructuring Groups and Recruitment
Restructuring or “Rx” is a product group within investment banking that focuses on bankruptcy, special situations and distressed debt. When certain companies can no longer pay off their liabilities, they will hire a restructuring banker to guide the process. In regards to bankruptcy, firms have two options, they can file for Chapter 7 and liquidate their assets or Chapter 11 and try to rehabilitate, or reorganize the business in order to emerge from their financial troubles. In Chapter 7 bankruptcy the company tends to be at a “point of no return”, needing to sell its assets to pay creditors. Chapter 11 bankruptcy allows for more flexibility and strategy, where restructuring bankers try to find the best options to help the company make it through.
Restructuring Strategies
Bankers try strategies like refinancing, selling certain assets, debtor-in-possession financing, negotiating loan contracts, and reorganizing the company. Restructuring takes plenty of strategy, and is therefore attractive for bankers interested in solving complex multi-step problems. There are many players in every bankruptcy, the debtor (the company going bankrupt) and the high level creditors seek the advice of restructuring bankers, while lawyers and judges are involved in settling the case. With many parties involved, no bankruptcy situation is the same, creating unique and interesting outcomes.
Restructuring Groups
Among their core services, bulge-bracket banks offer commercial banking services like loans to people and companies. They are often creditors to various debtors, creating a conflict of interest when it comes to bankruptcy. Bulge-bracket banks would act in their own interest when it comes to helping a company restructure its debts. This situation births the advantage for boutique banks. Boutique banks are focused in advisory services and typically do not give out loans. Their focus on investment banking makes them a better fit for companies in need of restructuring. They can offer advice and strategies that are free of ulterior motives, creating a trust between the bank and the client. Since these boutique banks are smaller, their product groups are also smaller, allowing them to focus more on services like restructuring.
Recruitment
Incoming analyst interested in Rx generally focus on recruiting for boutique banks. This includes banks like Rothschild, Moelis, PJT, Greenhill, Lazard, and PWP. Boutique banks are generally the industry’s go-to for Rx. Unlike M&A bankers who get paid a percentage of their completed deal, restructuring bankers get paid retainer fees when representing a debtor. On the credit side, the boutique banks try to work with companies that have high priority to receive their debt. Creditors pay the boutique banks if they received their payment, justifying a bank’s focus on offering services to 1st or 2nd level creditors.
In the grander investment banking world, Rx offers a unique opportunity for young analysts because it offers exposure not only to finance, but also may lead to complex legal issues. For people interested in both finance and law, Rx allows them to observe and learn some of the corporate legal aspects. Bankers get to work hand in hand with lawyers to find opportunities for companies to restructure their debt. The legal system is heavily embedded in bankruptcy.
Dealing with people and a company’s management makes every Rx situation different. For perspective, when a company’s management is seeking a M&A banker’s help with an acquisition that ultimately fails, the management in most cases can get on with their job. However, for Rx, the management of a company is in dire need of help from the Rx banker, facing the demise of the company. If the Rx fails, the management and employees of the company will likely lose their jobs. This situation leads to complicated situations and difficult decisions for Rx bankers. This type of work is more obscure and intellectually enticing. Rx gives analyst the chance to see the financed base concepts in investment banking, while reminding the banker that the issues at hand are affecting the client/people they meet and work with directly.
