Restructuring Investment Banking: Everything You Need to Know
Restructuring investment banking is one of the most niche and misunderstood areas of investment banking. This is largely because there is incredibly limited information on what restructuring investment banking actually entails and even less information produced by those who have actually worked at an investment bank with a top restructuring group.
However, over the past five years there has been a rapid increase in those who have become interested in restructuring.
In particular, restructuring has rapidly become the area of investment banking most sought after by students coming out of top colleges at either the undergraduate or graduate level.
This rapid rise in the popularity of restructuring can be attributed to a few different factors:
- The limited number of analyst and associate positions at the top restructuring groups (the most recent league table for restructuring is provided below)
- The generally higher level of pay restructuring investment bankers earn (compared to doing M&A at a Bulge Bracket firm)
- The novelty of restructuring deals and the inherent mix of psychology, law, and finance that goes into putting together a deal
- The wide swath of potential exist opportunities available (going to a distressed debt hedge fund, a traditional private equity firm, a direct lender, etc.)
This rise in popularity has only been exacerbated by the events of 2020 which have led to many restructuring investment banks having to turn down pitches and mandates.
In this lengthy post we'll go over the basics of restructuring investment banking including covering who the major players are, what the solutions they recommend will look like, and what makes the world of restructuring so unique.
Whether you're looking to break into restructuring investment banking or are just looking to better understand the world of restructuring, you may want to take a look at the lengthier Restructuring Interviews course I've put together.
The course includes a nearly 100-page guide detailing how deals are put together, what deliverables look like, and what the day-to-day job entails. Separately there are over 500 interview questions and answers included in the course that range from the most basic to the most advanced.
Restructuring Investment Banking Overview
In order to break down the world of restructuring as succinctly as possible, this post will be broken down into the following sections. Feel free to skip around to whatever area you're most curious about or read this from start to finish.
- What is Restructuring Investment Banking?
- The Restructuring Timeline
- The Signs of Corporate Distress
- Restructuring Investment Banks and What They Do
- The Restructuring Solutions
- Restructuring Deal Trends in 2021
- Restructuring Investment Banking Roles
- What Makes Restructuring Investment Banking Unique
- Additional Restructuring Resources
For many laypeople - including those with years of experience in finance outside of restructuring - there is a misconception that restructuring investment banking deals with companies that are irredeemably broken.
In reality restructuring investment banking deals exclusively with companies that can not only be salvaged, but can potentially thrive moving forward if they rightsize their capital structure.
The goal of a restructuring investment banking is to find a solution - that is agreeable to both the relevant creditors (debt holders) and debtor (the company) - as to how the company should reorganize itself.
However, there is no getting around the fact that in any restructuring some creditors are going to need to take a hair cut on the debt they hold or take other forms of consideration. The question isn't if, but rather how much and when.
Restructuring investment bankers will be hired by the debtor (the company) and a different set of restructuring investment bankers will often be hired by a group of creditors (not all of them) to advise them as well.
While any restructuring scenario is necessarily adversarial the shared aim of both parties is for the company to be set up for success moving forward as a result of the restructuring.
Restructuring investment banking boils down to the debtor-side bankers developing innovative, bespoke solutions to craft a new capital structure that will allow a company to either have time to turn things around, or be profitable under this new capital structure. The creditor-side bankers then will engage in negotiations trying to get the best terms - meaning the most money - for their side.
Restructuring investment banking is an incredibly iterative process that requires lots of back and forth, development of new term sheets, long conference calls, and (for the restructuring analysts or associates) seemingly endless updates to slide decks and models.
Note: Unlike traditional M&A banking - dominated by household names like Goldman Sachs, J.P. Morgan, and Morgan Stanley - most restructuring activity is done by a select group of relatively small, elite firms such as PJT, Houlihan Lokey, and Evercore.
Before moving forward, we should take a step back to discuss the general timeline that undergirds restructuring deals.
Another common misconception is that restructuring investment bankers get involved at the point of the bankruptcy filing. While this could conceivably be true, generally speaking senior restructuring investment bankers will have a long list of companies that they keep their eyes on.
When one of these companies appears to be getting more and more distressed the banker will begin making calls and try to get in front of the CEO in order to pitch him or her on how the company can rightsize their balance sheet.
The job of a restructuring investment banker is to get in front of the company as early as possible in order to take control of the process and come up with innovative solutions while there is still time.
For example, when I first started in restructuring in 2017 we had to compile a capitalization table for Hertz (no easy task, as it was an absolute mess). At the time Hertz looked like it only had a modest amount of stress and probably wouldn't need to restructure. Fast forward to 2020 and Hertz rather infamously filed Chapter 11 (and is being advised by Moelis).
The point is that restructuring investment bankers try to get in front of a company long before they themselves even begin to think seriously that they are going to have to restructure.
For this reason, before talking about restructuring solutions we should first talk about what signs of distress a restructuring investment banker will look for.
Understanding what the tell tale signs of distress are is critical to then exploring what solutions a restructuring investment banker will come up with to rightsize the company.
As mentioned previously, senior investment bankers will have a list of companies they are keeping their eyes on that are not necessarily in distress now, but are apt to become distressed in the future.
This "list" takes the form of what are called profiles and screens.
Screens are a compilation of one-pagers on companies - usually all within the same industry, such as technology or oil and gas - that include a detailed capitalization table and a few points of note (usually contained in the footnotes of the page).
Screens are for companies that are reasonably healthy (or at least not overly distressed) now, but could end up being distressed in the years to come. In other words, screens are just the way in which restructuring investment bankers keep an eye on troubled companies in a certain section.
These screens are routinely updated - every quarter or two - to reflect where the companies are now. If a managing director or partner spots a company trending in the wrong direction they'll then ask an analyst or an associate to create a profile on the company.
Profiles are generally 1-3 pages in length and get into a bit more detail. They'll often contain a chart of where the debt is trading, a qualitative page on the company with recent news, and then a capitalization table with a few more footnotes added than before (on specific relevant covenants, etc.).
So when talking about a company in distress, what one should really should be keeping an eye on are the critical elements that are included in profiles and screens.
Note: In Restructuring Interviews examples of screens and profiles are provided.
Limited or Diminishing Liquidity
In restructuring we have a very specific definition of liquidity that is as follows:
- + Revolver Capacity (subject to restrictions on draws)
- - Letters of Credit Outstanding
- - Restricted Cash (cash that is earmarked for something)
When dealing with a company that is approaching or in distress, liquidity is of critical importance. This is because liquidity is indicative of runway (which is why restructuring investment bankers will often create something called "liquidity roll forwards" to project out liquidity) and liquidity offers optionality in what a company can potentially do in a restructuring (e.g. a company can pay down debt in exchange for doing an amendment to the terms of that debt).
Maturity walls, as the name implies, are the dates at which the debt of a company will mature. For a healthy company, even if most of the debt matures in the same year, it's not an overly large concern because the company can roll over (refinance) that debt easily.
However, for companies that are approaching or are in distress things get a little bit more complicated. Perhaps not all the debt can be rolled over. This inability to ultimately pay back the debt is often an impetus for needing to do a wholesale restructuring of the company so is something a restructuring investment bankers keeps their eye on.
An example of how maturity walls can be illustrated to show what debt is coming due and when (obviously, in practice you'll do nice little graphs in Excel):
Debt Trading Levels
Another common misconception is that equity trading levels matter to a restructuring investment banker.
Of course, if a publicly traded stock is trading so poorly that it's about to be delisted then that's certainly an indication something has gone wrong. However, a restructuring investment banker is concerned with the capital structure (which is exclusive of equity).
What these bankers care about most, to ascertain whether their services are needed by the company, are debt trading levels. As was seen in the early part of 2020, often healthy companies can have their debt trade at substantial discounts for temporary periods.
However, one thing restructuring investment bankers will keep their eye on is the debt trading level of various tranches of debt within the same company and who the largest owners are.
For example, if a Term Loan A (the highest term loan in the capital structure) is trading consistently around 90, but Senior Notes (subordinated to the TLA) are trading at 80 one month and 70 the next then that's a sign that investors think the company is in trouble and that the recovery values of the Senior Notes will be quite poor in the event of a Chapter 11.
A recent example of the massive volatility in debt pricing when restructurings are taking place:
Now that we've quickly covered when restructuring investment bankers begin looking at companies, and what they look for, it's worth talking about where these bankers actually work.
While Bulge Bracket firms will often have a restructuring practice, these are rather muted in what they can or will do for a variety of reasons (primarily around conflicts of interests they have with the companies that are now distressed).
The primary restructuring investment banks are small advisory only firms with limited or no balance sheet (meaning no traditional ECM or DCM desks).
While arguments can be had about what the top restructuring investment banking groups are, the following are what I would describe as the Tier 1 restructuring groups (in no particular order):
The latest 2020-2021 restructuring league table shows Evercore and Houlihan Lokey leading the way:
An important note about restructuring league tables, unlike M&A league tables, is that many deals are done out-of-court and are not accounted for in these league tables. However, it's a safe bet that these five firms are always in or near the top five for restructuring activity.
As already discussed, senior members of a restructuring investment banking group will be keeping an eye on companies that are trending toward distress. When they notice that a company should start thinking about restructuring solutions they will reach out in order to try to pitch the company on a certain restructuring solution.
If a company decides that restructuring is something they should pursue, they'll often bring in other restructuring groups to pitch them as well. This is a bit less coherent of a process than a bake-off in M&A, but the same principle applies.
For larger debtors (companies) you'll often have around three to five restructuring investment bankers come in and pitch what they think the company should do and (more importantly) what the company can do.
Unlike in M&A where you'll have a number of different investment banks working together on a transaction, in restructuring the debtor will often just have a sole advisor (for example, PJT).
With that being said, the long nights of putting together the pitch for the company are not necessarily wasted if the pitch wasn't won. Instead, the restructuring investment banks that lost the debtor-side mandate will then just go to the relevant creditors and try to win a mandate advising them.
Note: Not all restructuring deals will have creditors advised by a restructuring investment banking group; this tends to just occur with large restructurings where relevant creditors group together because they all have large amounts of capital invested and want independent advice on how to maximize their recovery.
A quick way to summarize debtor-side vs. creditor-side restructuring is that debtor-side restructuring is proactive and creditor-side restructuring is more reactive. Generally the debtor-side advisors will be the ones who are actively coming up with restructuring solutions and trying to gain the support of creditors, whereas creditor-side advisory involves carefully reviewing those solutions and deciding how to respond.
For the sake of brevity I won't get too much further in the weeds of this distinction. However, if you're curious about this here's a longer post on creditor-side restructuring.
A common misconception that floats around the internet is that certain restructuring investment banks - like Houlihan Lokey - primarily get creditor-side mandates and the rest of the prominent restructuring investment banking groups focus almost exclusively on debtor-side mandates.
This is entirely untrue. The reality is any restructuring investment bank would rather advise the debtor-side - since the fees are higher, often by an order of magnitude - however they are more than happy to take the creditor-side mandate if they can.
Now comes the difficult part. Traditional M&A deals are a bit more formulaic in their structure. The complicated part is modelling out complex companies over an extended time-frame to find the right price. In restructuring, the inverse is true: deals are often very complex, but the modelling is less intensive.
For a more in-depth dive into the restructuring solutions that bankers will come up, be sure to check out Restructuring Interviews (where the nearly 100-page main guide gets into this more).
But in order to set the stage, below is an illustration of the restructuring pipeline:
A restructuring pitch is not a singular solution, but rather is a set of possible solutions. Once the mandate is won the restructuring investment banking group will then try to figure out what one of these solutions may actually work with the creditors (perhaps throwing out a few ideas initially to guage interest).
This is an important and often overlooked point: while in M&A you're arguing between the buyer and seller about a rather narrow set of terms (price, cash/debt mix, etc.) in restructuring you can often be arguing about wholesale differences in the kind of restructuring being done.
In-Court vs. Out-of-Court Restructuring
As can be seen from the little restructuring flowchart above, it can appear that there is a clear delineation between out-of-court and in-court restructuring. Strictly speaking, this is true. However, many in-court restructurings will be preceded by an out-of-court restructuring that the company did years earlier that didn't allow the company to rightsize enough.
The rationale behind trying out-of-court restructurings - even if they may not be as fulsome a solution as what could be done in-court - is that:
- An out-of-court protects existing equity holders who will not be entirely wiped out as they would almost invariably be in the case of a Chapter 11 (where the reorganized equity would go to the impaired class)
- Filing for Chapter 11, even if its done quickly and effectively, is per se disruptive to suppliers, customers, and any unsecured creditors; an out-of-court restructuring simply has less stigma attached to it and can be done quickly and quietly (most won't even know that it occurred)
Another important contextual point is that the actual restructuring done out-of-court and in-court can often look similar (with the primary difference being the treatment of equity).
For example, sometimes you'll have a retailer in trouble and a restructuring investment bank will do a pitch around how to restructure the capital structure, but then it'll ultimately be decided that this should be done under a Chapter 11 as then Section 365 of the bankruptcy code (around assigning, assuming, and rejecting leases) can be utilized.
Further, you can often run into a scenario where a debtor has proposed a sensible, fair restructuring that is perhaps far better than what creditors can expect if Chapter 11 is filed. However, changes to money-terms out-of-court require near unanimous consent of the relevant parties so stubborn creditors can force a company to file anyway. Thus part of doing any out-of-court restructuring is trying to convince creditors they'll be worse off if a company has to file Chapter 11 (otherwise what's the point of creditors taking a loss now?).
An increasingly popular middle ground to out-of-court and traditional in-court solutions are pre-packs (pre-packaged or pre-planned bankruptcies). These work by a company, prior to filing, essentially having commitments from all or mostly all of the relevant creditors as to what the restructuring in bankruptcy will amount to. This allows the company to fly through the bankruptcy courts in a few months.
One thing that will not be discussed here is Chapter 7 as it's largely irrelevant to restructuring investment banking. In a Chapter 7 a U.S. Trustee takes over and liquidates all the assets of the company and disburses the proceeds to creditors via the rule of absolute priority.
There is simply no role for an investment banker here. Indeed, the entire point of a restructuring investment banker is to change around the capital structure, gain consent of creditors, and rightsize a company. Any company a restructuring investment banker thinks is liable to need to do a Chapter 7 simply won't be approached or engaged with.
The Case of Neiman Marcus
Trying to articulate all the permutations that can occur in a restructuring is a nearly impossible task in a few paragraphs.
However, the case of Neiman Marcus in all of its complexity illustrates some of the major solutions that exist in a restructuring rolled together as one.
Neiman Marcus is one of the better known luxury retail chains in the United States, which like all large brick-and-mortar retailers has had a fall from grace over the past decade.
Neiman in early 2019 was faced with potentially having to file Chapter 11, but was looking for solutions out-of-court if at all possible.
Neiman turned to both Lazard and Moelis - as mentioned earlier, it's quite rare for a debtor to have two advisors - and worked alongside creditor groups advised by Houlihan Lokey to come up with a solution.
The solution formalized in Spring of 2019 was quite complex and restructured the entire capital structure of Neiman.
Such a thorough restructuring out-of-court is quite rare. Often out-of-court restructurings will focus in on just one troubled part of the capital structure (perhaps because it's coming due soon or it's covenants are being stretched).
Nevertheless, in early 2019 Neiman had the following capital structure with over $4.4 billion in total debt outstanding:
- $2.8bln cov-lite TLB due Oct, 2020 (L + 325 w/ 1% LIBOR floor)
- $659 8.75% / 9.5% PIK toggle notes due 2021
- $960 8.0% cash notes due 2021
We can present this in the form of a simplified cap table below:
|TLB||$2,800||$92.0||$2,576||L + 325||2020|
|PIK Toggle||659||52.5||345||8.75% / 9.5%||2021|
In this out-of-court restructuring every element of the capital structure was reorganized.
For the TLB, an amend and extend was done, which is almost always the first thing that restructuring investment bankers will think about when there's a term loan maturing shortly.
Amend and extends work by saying to the term loan lenders, "We'll give you a higher interest rate and some cash upfront for just extending out the maturity of your term loan a few years".
In the case of this TLB, the maturity was pushed out three years and in return the interest rate was increased to either L + 650 or L 550/100 PIK (meaning 550bps cash and 100bps in additional debt). Both carried a slightly higher LIBOR floor of 1.5%.
Further, cash was given to the TLB lenders to the tune of $550mln, which is reasonably significant for a tranche of debt that is just $2.8bln.
As you'd likely guess, Neiman didn't have $550mln in cash on hand. Instead they partly raised this funding via a new 2L Note (second lien bond) that was collateralized by $200 from MyTheresa (Neiman's relatively fast-growing e-commerce operation). This new 2L paid 8% cash and 6% PIK and matures in 2024 (again, this pushes out the maturity walls of Neiman several years).
For Neiman, this is a pretty onerous deal. They're having to take on more debt at high terms to pay down the term loan and significantly enhance the rates paid to the remaining term loan all just to get a few years of additional runway (potentially).
However, for the term loan lenders themselves it's quite a favorable deal and was reflected in the fact that the term loan traded to near par after the deal was announced. For these lenders they get additional cash now, additional cash interest, and still have a first priority in the event of a Chapter 11 so they will almost certainly be made whole (or get the majority of the reorganized equity if impaired).
Unsecured Notes Restructuring
For the Unsecured Notes, they weren't treated quite as well. The reason being is that Neiman likely understood that if they were to file Chapter 11 the recovery rates on the Unsecured Notes would be quite low, so they could take a rather large haircut in any out-of-court plan.
The Unsecured Notes - treated as one class - got $250mm in 10% preferred equity against MyTheresa (the e-commerce side of Neiman) and the remaining principal balance was converted to 3L Notes due 2024.
An important distinction is that this debt exchange - which resulted in preferred equity and 3L Notes being given in order to retire the existing Notes and thus bump out the maturity to 2024 - did not result in any new money being raised or any money being paid to the Unsecured Notes. Instead the Unsecured Notes simply get new claims on the company that are on the one hand more secure (the 3L Notes) and more junior (the preferred equity).
A consortium of note holders (called the ad hoc group or committee) were advised by Houlihan Lokey. The job of the restructuring investment bankers at HL would have been to advise the note holders as to whether or not this exchange was more or less favorable than what would likely eventuate in a Chapter 11.
Proof that this deal was ultimately favorable - and thus that HL did their jobs well - is that the day after the deal was announced the PIK toggles increased by seven points and the cash-pay notes increased by 7.5 points.
Restructuring Solutions Summary
Detailing all the possible permutations of restructurings in such a short space is an impossible task. However, Neiman's out-of-court restructuring in early 2019 was comprehensive enough to show many of the tricks that restructuring investment bankers will turn to when coming up with an idealized restructuring to pitch a debtor.
Unfortunately for Neiman their out-of-court restructuring fell a bit flat. With the events of early 2020 their FCF - and thus their liquidity - began to evaporate rapidly and they filed Chapter 11 in May.
Interestingly, their Chapter 11 has also given rise to a bizarre scandal involving a distressed debt hedge fund and a former Navy Seal you can read about on Bloomberg Law.
The path that Neiman has taken is not uncommon. The preference of nearly all parties involved will be for there to be an out-of-court restructuring if at all possible. Even if all parties understand that an out-of-court may not give the most thorough and comprehensive restructuring possible, it'll still be tried and a Chapter 11 may follow in the years after.
Below is a little flow chart that may solidify your understanding of the process.
One of the things that makes restructuring so unique - from the junior perspective - is that you'll be dealing with a wide array of industries and restructuring solutions.
Further, during your time in restructuring - whether that's a few years or a few decades - you'll notice trends in the types of companies in need of restructuring and the strategies used to de-lever them.
When I did my first summer analyst stint in restructuring, oil and gas made up a large part of the transactions being dealt with. Retail was a close second.
Now so many oil and gas companies have restructured that even with lower O&G demand there are perhaps fewer O&G filing than one would imagine.
On the flip side, while many retail companies have notably restructured over the past four to five years, the events of 2020 accelerated that trend and companies within the "consumer discretionary" industry - which is largely composed of retail - was by far the biggest category of filers.
Here's a good chart from S&P global recapping the filings from 2020 by sector:
One oddity of the past year - among the many that exist - is that while Chapter 11 filings are up and some restructuring investment banks have needed to turn down mandates, debt capital markets have astoundingly strong.
One thing you should always keep an eye on are the indices for BBB (lowest investment grade rating), BB (highest speculative grade rating), and CCC (lowest meaningful speculative grade rating) rated debt and general trends in volume and spread.
Beyond the fact that these spreads have come in to roughly where they were in the beginning of 2020 - which is nearly their all-time-lows - there are a few other things to note about what has happened within these rating categories.
- BBB contains the largest amount of investment grade debt
- BB contains the largest amount of speculative grade debt
- YoY issuers of CCC debt increased by ~100%, and the notional value of that debt rose by ~40%
Practically speaking, for the world of restructuring, this hot debt market has allowed for many creative restructurings to take place that involve new money issuance as well (due to the strong demand from credit funds to place money somewhere that they can get decent yield).
The Tupperware Out-of-Court Restructuring Deal
Consider the case of Tupperware, the company that makes plastic containers for food and whatnot.
Tupperware, advised by Moelis, was facing down $600mm in Senior Notes (4.75%) coming due in 2021. As we went over in the course, this is a classic case of a company needing to deal with a maturity wall and bringing in restructuring investment bankers early to try to get around it.
The Senior Notes were trading at a touch under 50 cents on the dollar due to the likelihood of Tupperware eventually filing. However, Tupperware had quite permissive debt documents for its revolver and was able to draw down $175mm in cash that it then used in order to do a tender offer with some of the Senior Notes. This means they essentially went to their Senior Notes and said, "Hey, obviously these Notes are trading at a heavily impaired level and if we end up having to file Chapter 11 your recovery value may be even less than where the debt is trading now, so to make everyone's life easier we'll just give you forty-five cents on the dollar now to retire these Notes."
The first tender went so well that another was done to retire even more Senior Notes. However, Tupperware wasn't in the clear quite yet. Those Senior Notes that didn't take either tender offer hired an advisor of their own to try to maximize their position.
The remaining Note holders saw that they potentially had leverage (which they did) to continue to holdout and perhaps either a) exchange their debt into more senior, higher paying debt b) get taken out at whole (instead of having to take a serious haircut, as the other tender offers provided).
However, Tupperware was a beneficiary of increased demand for their products in 2020 and with a diminished debt load Angelo Gordon and J.P. Morgan swooped in to provide two term loans of an aggregate amount of $275mm. These term loans weren't cheap. You can see the pricing terms in the SP Global link above, but essentially Tupperware will be paying cash interest of just shy of 10% (when accounting for the LIBOR floor, which sets a minimum level of LIBOR).
The proceeds of these term loans, along with existing cash on hand, was earmarked to be utilized to redeem the remaining Senior Notes (which at the time totalled ~$380mm after ~$220mm were redeemed via the two tenders).
As a result, with the announcement of the new term loan facilities, the Senior Notes traded back to par. Remember that the initial tender was at forty-five cents on the dollar and the Senior Notes at the time were trading roughly around that!
So while it was risky for the reamining Senior Note holders to hold-out, in the end it did pay to hold out (or to buy at heavily distressed levels prior to the first tender).
In the end, Tupperware completely refinanced their Senior Notes, which represented a maturity wall that could have forced the company to file Chapter 11 in 2021. Instead, Tupperware does not have any maturities coming due until the aforementioned new term loans come due in Q4 2023.
This pushing out of maturities buys the company time to continue to turn around the business and hopefully replace the existing term loans with cheaper debt.
This is really an idyllic restructuring transaction and Moelis deserves credit for how well it was executed (although it did help that the events of 2020 helped the underlying business!).
So, Tupperware was able to retire ~$220mm of their Senior Notes at a heavy discount, raise new debt that won't mature until Q4 2023, and then retire the remaining amount of Senior Notes thus giving the company two more years to continue to turn things around.
This out-of-court transaction also has the benefit of not diluting the existing equity of the company and, as you would expect, equity holders loved that. While the equity reached a low of $1.15 in mid-march, the equity is now flying at around $33.00.
Restructuring investment banking titles follow the same format as you see in traditional investment banking groups:
- MDs / Partners
As in other areas of investment banking, there are clear responsibilities and expectations attached to each role.
Analysts are responsible for pretty much everything from setting up phone calls with creditors to discuss proposals, to doing the modelling behind the deals themselves, to aligning logos in PowerPoint.
Given that so much of the work in restructuring is novel, there are less templates and guidelines than in M&A, which can make the work particularly grueling.
Analyst hours at top firms will routinely get to the 80-90 hour level and it will definitely feel like you've been working 80-90 hours a week (trust me).
With all that being said, analysts do generally tend to leave for the buyside (distressed debt hedge funds, private equity firms, etc.) after just 12-24 months partly due to how quickly they get up the learning curve.
In more traditional areas of investment banking, associates are responsible for keeping a certain project on the right tracks. They make sure the analyst knows what work they need to do, they review the work of the analyst, and they communicate up the chain of command as to how the project is progressing.
This is all true for restructuring associates as well. However, restructuring associates will also often be working directly in the model themselves as well and doing some of the drudge work that normally is reserved just for analysts in M&A.
This is partly due to the modelling in restructuring often being quite undefined and complicated. As a result if a deal team only has one analyst and one associate on it then it benefits the team to have two different sets of eyes actively on the model.
In restructuring investment banking vice presidents (VPs) have a role that is perhaps a bit more analogous to seasoned associates in M&A.
VPs will not be going out and soliciting deals, but they will be talking to currently engaged clients about how a deal is evolving, going to pitches, etc.
Further, VPs will no longer be working in Excel or PowerPoint themselves. Instead they'll simply be reviewing the decks (finished PowerPoint slides) and marking them up for any changes.
At any given time, VPs will be on a number of different deals and will be responsible for making sure everything is on track below them and will be communicating most directly with the MD.
Managing Directors (MDs) are generally the highest title in restructuring investment banking. Some groups may also have a title called "Partner", but that usually just reflects how many years they've been there or if they have early equity in the bank (remember that firms like Evercore, PJT, and Moelis are all quite young).
MDs - just like in M&A - are ultimately responsible for bringing in business. Their job is to get in front of potential clients, pitch novel restructuring solutions, and then (if they win the mandate) getting a favorable deal done with creditors in- or out-of-court.
MDs will generally communicate down the chain of command what kind of restructuring solution they're thinking of for a company and it will be the responsibility of the VP, associate, and analyst to put together a presentation showing how this restructuring solution would look.
Restructuring Investment Banking Salaries
Restructuring investment banking groups at "elite boutiques" like PJT, Evercore, etc. will pay the same as the M&A groups at those banks. However, compared to M&A groups at Bulge Brackets the compensation is significantly higher.
Further, as you get more senior in restructuring investment banking - getting into the associate and VP years - the compensation does tend to outpace M&A. This is largely due to how few people have a restructuring skillset and how high the pay is on the buy-side (thus forcing up senior sell-side compensation).
Below is a brief illustration of compensation at top restructuring investment banks.
For analysts the all in compensation will be between $150,000-$220,000 per year depending on which group you end up with (Centerview pays even more, but that's a blended M&A and RX analyst program that you need to stay three years with).
For associates - who can be just three years out of undergrad or fresh from an MBA - the compensation is around $250,000-$350,000 per year.
For VPs, the compensation gets more variable by bank and is dependent on the number of years in the role, but is generally $400,000-$700,000.
For MDs, the compensation is too variable to possibly give a tight range, but it will likely be somewhere in the low seven figures on average ($1,000,000-$3,000,000) with some of those in RX who have been active for decades, or who have brought in a lot of business that year, getting substantially more.
I should caveat these salaries by noting these apply to Tier 1 firms in the United States and that compensation for RX in Europe and Asia is generally lower. However, RX salaries in those geographies generally heavily outpace M&A salaries as well.
A question asked in nearly every restructuring interview is: why restructuring? It's so common that I dedicated an entire post to it here.
The reason why it's asked so often is the question allows an interviewer to understand if the interviewee understands what makes restructuring so unique. As those who have gone through the Restructuring Interviews course know, having a contextual understanding of restructuring is the singular best way to stand out in an interview at the analyst or associate level.
For the sake of brevity - irony aside, given how long this post is - the following are reasons why restructuring is so unique:
- Clients that are engaged will almost invariably need to do something in order to rightsize (the question is just what the right restructuring solution is)
- There is no known, right answer as to what should be done. Instead it's up to the restructuring investment bankers to figure out what restructuring solution puts the company in the best position to succeed
- Understanding what the right restructuring solution is requires a deep understanding of the entire capital structure, underlying debt documents, and future prospects of the company
- Every deal is unique - although often drawing on the same elements - and is in constant flux due to negotiations taking place with creditors
- Restructuring, more than any area of banking, draws on psychology, finance, and law in an often chaotic blend
Of course, there are downsides to restructuring investment banking just like there are with any job or industry. The primary downside is just how specialized a restructuring investment banker is and the limits this puts on what you can do moving forward.
For example, many M&A bankers will end up burning out at some point and moving to a corporate development job. Restructuring bankers can't really do that as the skillset they develop is much less valued in large Fortune 500 corporations.
Instead, the exit opportunities for restructuring bankers are all still within high finance where the pay is high, the hours are long, and the stress is unavoidable. This should be sobering for anyone looking to get into restructuring; there are a lot of benefits to it, but it is perhaps more of a commitment.
Part of the reason why I create Restructuring Interviews was because I saw how many people didn't know anything about restructuring prior to getting into it. It's critically important prior to jumping in to restructuring to have the contextual understanding of what your job will actually be, where you'll likely end up down the road, and how your skillset will be valued and utilized.
Part of the rationale behind the creation of Restructuring Interviews was to shed some light on what restructuring investment banking actually is in practice.
While areas like M&A - and even DCM and ECM - have quite a few practical resources online there is barely anything on restructuring investment banking.
Restructuring investment banking can get quite complicated and is terribly difficult to distill it all down in even a lengthy post like this. Hopefully this post has helped you understand at least the broad contours of restructuring investment banking and cleared up a few misconceptions about the field that are perpetuated online (such as that restructuring is all about in-court work).
If you want an even longer explanation of restructuring - where I really get into the weeds of how restructuring solutions are structured, what deliverables look like, etc. - then be sure to check out the Restructuring Interviews course.
The course is meant for a far wider audience than just interviewees. In the main guide there's a break down of what restructuring investment bankers do day-to-day and how deals are structured. Then there are additional guides with over 500 questions and answers that cover nearly every practical element of restructuring.
Here are some additional resources as well that may prove useful:
- The Top 15 Restructuring Interview Questions
- The Top Restructuring and Distressed Debt Books in 2020
- Creditor Side Restructuring Investment Banking
- Interview Question: Chapter 7 Liquidation Analysis
- Distressed Debt Interview Questions
The world of restructuring is incredibly interesting and I hope this post has at least shed a little bit of light on how this world works. Be sure to let me know if you have any questions.