Restructuring Investment Banking: What is it?

What is Restructuring?

Restructuring is the product group in the investment bank responsible for dealing with stressed, distressed and bankrupt debtors. Almost always, this means corporate debt, but every so often governments can go bankrupt (from the municipal level, to entire countries).

Restructuring is an advisory group that will advise stakeholders on both sides of the bankruptcy, both the distressed borrower side and the creditor side. However, the bank will only represent one side of the group because there are often conflicting interests. The debtor will look for outcomes that will maximize the equity holders and the lenders/banks may not have the same objective.

Investment banks are retained in restructuring for the purpose of walking the stakeholders through their options and the steps that are needed to take in order to maximize value. Additionally, work can include renegotiating with banks and lenders to relieve terms where the debt may be too crippling in exchange for equity, debt-equity swaps, and new management incentive plans.

Restructuring Groups at Investment Banks

When restructuring is offered by an investment bank, it is usually classified as a product group alongside M&A and sometimes it is included within the mergers & acquisitions practice. Restructuring does not exist at every bank and is mostly missing from Bulge Brackets as well as large domestic banks. Therefore, the restructuring group is dominated by elite boutique banks, with Houlihan Lokey dominating the creditor side while the debtor side is covered by many different firms.

Exit Opportunities and Compensation

Compensation is high compared to other groups and is additionally counter-cyclical (when the economy is contracting, restructuring is highly needed). For junior staff (analysts and associates), they receive salaries up to $230,000 after bonuses. These larger salaries are earned typically because restructuring groups are known to be “constant sweatshops and no one is ever in a good mood.”

Exit opportunities are very niche, but also lucrative for junior investment bankers. The most obvious choice is a distressed debt fund. However, there are plenty of credit-related jobs at hedge funds and private equity firms that are willing to pay for someone who’s experienced being in a restructuring group.

Sample Restructuring Interview Question

If a company’s EV is $300 million and it has $400 million in debt outstanding, what is the equity value?

Equity value is $0 and the debt is simply trading at 75 cents per dollar. Equity value does not become negative because shareholders hold zero liability and therefore could walk away.