Top 5 Guggenheim Interview Questions
Investment banking is a game of musical chairs. Routinely top bankers are poached by competitors - often those a few notches down the league table - in order to help them get a stronger foothold in a certain area.
Nowhere is this more true than in the world of restructuring. Over just the past ten years you've had firms near the top of the RX league table fall heavily down after a few key departures to either other banks, or to start their own shop altogether. The latter of these scenarios most famously happened when top producers from PWP RX left to form Ducera, which immediately caused a deterioration in deal flow to PWP's RX practice.
Guggenheim Partner's restructuring business began in 2012 after enticing Ronen Bojmel from Miller Buckfire to come start it. However, in mid-2018 Guggenheim made a significant commitment to restructuring by acquiring Millstein.
Millstein has always been a small, but relatively heavy hitting RX shop with a particular emphasis on sovereign restructuring (which is not something most RX shops have much experience in given the limited number of mandates that come up in that area).
Just to illustrate the musical chairs aspect of restructuring a bit further, Jim Millstein - the founder of Millstein - was before that the co-head of restructuring at Lazard.
Normally I don't get into the history of how various restructuring groups came to be. But Guggenheim has been by far the most aggressive in building out a restructuring business since PJT spun out from Blackstone (which was before my time in RX).
So it's been interesting to see what Guggenheim has been doing and it will be equally interesting to see what mandates they start getting now that they have two heavy hitters to bring into pitch meetings when necessary (Bojmel and Millstein).
Guggenheim Interview Questions
Below are some interview questions you should know for Guggenheim. Feel free to skip around using the links below.
Part of the reason for going over the history of Guggenheim's RX business in the preamble is that you should be cognizant of it when crafting your "Why Guggenheim?" answer.
In nearly every interview process you'll be asked at least once why you want to work at a given firm in particular. Normally you can get away with quite generic answers referencing league tables, who you've talked to at the firm, etc.
However, a great way to differentiate yourself at Guggenheim is to reference how quickly they're building out their RX business. You can then say that this is appealing because it means juniors will likely get more responsibility and there will likely be a flatter and more entrepreneurial culture.
Note: It's a truism that all banking groups like to think of themselves as having "entrepreneurial cultures". Why this is the case is beyond me, but it's true nevertheless.
With all that being said, there is one thing that you should not stress in your answer to this question: sovereign restructuring. Many candidates do a bit of research on Guggenheim, learn about the Millstein acquisition, and then decide that their angle to differentiate themselves in an interview will be to profess their interest in sovereign restructuring.
This is wrong to do for a few reasons.
First, sovereign mandates are rare. Even at a shop that's well positioned to get sovereign mandates, juniors will likely spend just a few months during their banking stint on them (if they even spend that much time). So talking about how you really want to work on sovereign mandates can betray the reality that you don't understand how relatively rare they are, and can perhaps leave the impression with your interviewer that you aren't overly interested in traditional corporate restructuring.
Second, Guggenheim isn't looking to be branded as a sovereign restructuring shop. They want to frame themselves as being a top restructuring shop that happens to have experience through Millstein in sovereign RX. Talking about sovereign RX too much during your interview could potentially irk your interviewer as they (rightly) don't want Guggenheim to be thought of a sovereign restructuring shop that also happens to do corporate restructurings.
So I would recommend talking about sovereign restructuring incidentally. As something you'd be really interested in working on if the opportunity ever came up, but that you realize how rare sovereign mandates are.
Let's say a company has $250 in enterprise value, $300 in debt, and no cash. What's the equity value? What do you think the debt of the company would trade at?
This is a classic question. If we think about a simplified enterprise value formula, there appears to be a bit of a discontinuity here.
We've been told the enterprise value, the debt, and the cash. But in order to have a balance between both sides of the equation it appears that we'll need to have a negative equity value, which is obviously not possible (remember we aren't talking about shareholders equity here).
The remedy, of course, is to think about where debt trades as opposed to just the face value of it.
First, you should clarify with your interviewer that this debt is all of the same seniority. If the debt is broken into tranches (e.g., a revolver and some senior notes) then you'd need to work through the waterfall (which I've covered in many other posts).
Assuming that the debt is all of the same seniority - and thus, in the advent of a Chapter 11 filing, would all receive the same recovery - we can just divide our enterprise value by the face value of debt to get a rough idea of where it'll trade. In this case, it'd be $250/$300, which would give a trading value of 83.33 cents on the dollar.
Now we also need to contend with the residual equity value here. Naively, since the debt above it is quite impaired, we could say that the equity value is zero. However, in reality it'll trade at some modest, non-zero value due to optionality (as I've also covered in other posts a few times).
So, practically, maybe debt trades at something like 81 cents on the dollar and the equity value is the differential - $0.0233*face value of debt - which keeps us in balance with the enterprise value of $250.
This is a great question to ask because it gets to what the signs of distress are, but with a slightly more practical twist.
In the course I go into much more detail on this and what deliverables for screens actually look like. But let's run through it quickly here.
You'll start by firing up CapIQ or FactSet. You'll then start with an industry (e.g., industrials) and begin the process of pairing down companies to a reasonable list of 10-20 potential restructuring candidates.
In order to pair down, you'll start by thinking about size. If a company doesn't have a lot of debt to restructure - but rather just has become very unpopular or whatever - then there's not many options for it from a restructuring banking perspective (plus there aren't many fees when you're restructuring a small face value of debt!).
So you'll begin by, for example, looking at companies with at least $500m of debt outstanding across their capital structure. You'll then often look at credit ratings. But remember that credit ratings lag a company's health so we don't want to be too stringent. So, choose something in the low investment grade range and below.
Then you can add things like overall leverage to the mix (e.g., 6x Debt / LTM EBITDA) and interest coverage (although you won't do this in some industries as it can exclude some companies that still may need to restructure).
Finally, you can generate a list from these criteria. If it includes 100+ names, then you can just rejigger some of the criteria used above (usually by raising the leverage qualification to a higher multiple) in order to get to a list of 30-50 names.
After that, you can look at each company's tranche of debt with the lowest trading value and sort the list that way. This will give you a good - but not perfect - sense of whether or not the market thinks a restructuring is likely to take place.
In the end, no screen will give you a perfect list of candidates. You'll always end up including some that, upon closer inspection, won't need to restructure or only may need to years down the road.
So the real challenge in doing good screens is manually pairing down the list from the 30-50 names you generate into a more manageable number of 10-20 names that seem like they'll need to restructure sometime in the next year or two.
Let's say a company sells an asset for $300 that has a book value of $100. Can you walk me through the three statements?
This is one of my favorite questions and crops up in both M&A and restructuring interviews (remember that you'll still face many traditional accounting questions in RX interviews).
First, we need to record the gain on the income statement, which is $200. For a tax rate, we'll use 20% giving us $160 in net income.
Note: Some banks still use 40% as the tax rate in interview questions. Others use 20%. Of course, it doesn't really matter, but just something to be aware of.
Moving over to the cash flow statement, at the top in CFO we start with $160 from net income, but then net out the entire gain ($200) as we'll be reclassifying the full sale under CFI. So CFO is down by $40 and CFI will be up by $300 (the sale amount) after the reclassification. This leaves the cash flow statement up overall by $260.
Finally, on the balance sheet we have cash up by $260 and an asset off the books of $100, leaving us on the asset side up $160. On the liabilities and shareholders equity side, we'll have $160 flowing into retained earnings from the net income on the income statement. Therefore, everything balances out.
Let's say we are selling a product for $200 and the cost is $100. What happens when a sale occurs in cash?
When preparing for either M&A or RX interviews, I find often the most eager candidates often overlook the most simple accounting questions in order to focus on more difficult (but rare) interview questions.
But simple accounting questions do crop up in every interview, so it's important to always be refreshing the more basic accounting questions like this one.
So here we have revenue of $200, COGS of $100, and thus pre-tax income of $100. Let's assume a 20% tax rate, so we'll have net income of $80.
Moving to the cash flow statement we have $80, but we add $100 due to the fact that inventory decreased (assets down, cash up). So we are up $180 on the cash flow statement.
Finally, on the balance sheet we start with cash up by $180. We then take off the inventory value of $100, which leaves us up $80 on the asset side. On the liabilities and shareholders equity side, we'll be up $80 as well from the flow of net income into retained earnings. Therefore, everything balances out.
Over the past few years Guggenheim has been expanding out their restructuring practice significantly. I've had a few people who went through the Restructuring Interviews course end up with offers from Guggenheim, and all reported back that they really liked the people they met through the process.
Whenever you join a group that's expanding quickly, there's always concern over how much exposure you'll get, what your exit opportunities will be, etc. I've been asked about this by a number of people over the past year and I really wouldn't worry about it too much. You may not get quite as diverse an array of exits as you would at EVR or PJT, but you will get plenty of opportunities from private credit to distressed funds to PE.
Best of luck in your interviews!