In college, my roommates and I would return to our dorm from hockey practice around 7:00 p.m., at which point we would order buffalo-chicken calzones, briefly consider opening a textbook, then power on our Xbox 360 and play Call of Duty 2, where I’d serve my country proudly for the next five hours. The night would typically conclude with a two-on-two team death-match in Vossenack. You could arm me with the bowie knife, that bullshit pistol, no ’nades, and spawn me in the crosshairs of my opponent’s scoped Kar89k rifle, and I’d still finish the game with the most kills. I say this not to be a blowhard. My point is that after five hours of COD each night, you start seeing red dots in your sleep, a result of using the scope feature on many of the guns in the game. The frequency of red dot appearances in my dreams subsided once I graduated and henceforth focused my attention on NHL 10.
But it’s back.
Despite its modest dimensions, the work BlackBerry determines not only the fate of my weekends, but every move I make—in short, my hopes and dreams. More specifically, it’s the red blinking dot in the top right corner of my BlackBerry—illuminating at the arrival of a new email—that haunts my sleep these days. There are two types of emails you get as a junior banker: the bullshit emails and the horrific ones. The bullshit emails cast a wide net—anything from DB propaganda pushing corporate responsibility or an exciting opportunity to volunteer painting murals at P.S. 17 (at noon on a weekday??) to the daily EIA coal pricing updates that I signed up for during my internship in a misguided attempt to make it look like I really cared. The only thing sadder than the person reading those emails is the person who writes them.
The bullshit emails are also comprised of auto-replies from my brethren at MAKS analytics, BIS, Presentation services, and FactSet, as well as email blasts from fellow junior bankers in desperate need of some page their MD claims was already created in another deck. Spoiler alert: it was probably never created. Seeing one of these bullshit emails in my BlackBerry inbox over the weekend results in a sigh of relief and is subsequently ignored.
But then there are the horrific ones—the ones you can’t ignore. These are sent by your MD or VP. If you’re lucky they’ll tell you to “change this,” “do that,” or “fix them.” That’s best-case scenario, when the demands are relatively clear. Of greater concern are the emails with comments like “makes no sense,” “WTF?,” or my personal favorite: “???????” While the level of guidance and method of conveying disapproval varies, the message is always the same—get to the office and turn these comments immediately, or the world will end.
So when the morning sun floods into my room on a frosty Sunday and wakes me from my Saturday-night stupor, my first instinct is to eye the square black device on my nightstand. As expected, the red dot blinks, just as it did in my sleep, but the question remains—bullshit or horrific? I type in my password with bated breath and check the inbox. The verdict is in: this Sunday will not be a day of rest.
The weekend gear at the office makes spending the day confined to the forty-fourth floor worth it. For guys, it’s a potpourri of unstructured ball caps, Patagonia vests, three-quarter zip pullovers with the logo of where they (or a friend) are a junior summer-member, snug khakis, boat shoes, and pastel Polos. For girls, it’s Lululemon tights, puffy vests, Tory Burch sneakers, and contrived “messy” ponytails.
I reread the email from my VP on my BlackBerry as I swipe my ID card to gain entrance to the forty-fourth floor. “Bill—Have last minute client meeting in Indy on Monday. Need you to run with this process and lead credit call tmw. Tx.” I would’ve preferred ten pages of comments to this two-sentence knife in the chest that ultimately transfers full responsibility of this deal from the VP to me.
The internal credit committee at DB is the team that determines whether and how much the bank can lend to a client. To make money, investment bankers need to lend when the client wants to issue debt. There was some noise in 2008 about lending standards being too lenient resulting in some credit issue, though I don’t remember the details fully. It’s up to the investment bankers to convince the internal credit committee that we should provide the financing our clients want. The credit committee’s duty is to ensure the bank is prudent in lending reliably to companies so they won’t default. The clash in incentives is clear. The credit team is on the brink of being smart enough to know that bankers are typically lying to them about the company they’re trying to get financing for.
In this case, Marx Industries has asked DB to enter into the company’s revolving credit facility. An RCF is essentially a company’s credit card that is used to fund day-to-day operations. Entering a bank’s RCF is one of the least—if not the least—risky types of debt to provide. After all, it’s only a commitment to lend, since companies rarely fully draw their revolver. None of this is important, and I’m not even sure I’m explaining it correctly. What matters is the following: this isn’t a risky deal. In fact, banks typically lose money on this type of transaction. Why do it then? It’s a show of good faith—and by being in the company’s RCF, it puts DB in a good position to lead future profitable transactions like an IPO, acquisition financing, or a sale. And while RCFs are usually painless, this process is made more complicated since this is a new client of the bank. Had it been a company we lent to in the past, there’s more familiarity internally. But we haven’t, so more explanation is needed to convince the credit committee that this should happen.
My original plan was to play the standard role of associate on this type of process—have the VP do all the high-level work, communicating the merits of the business to the credit committee and providing all the model assumptions to the analyst. Then I’d have the analyst put together the majority of the memo and run the model while I performed “industry research.” Once the analyst finished the first draft of the memo, I’d “review” it while watching the season finale of Curb I started during my “industry research.” I’d then give some broad comments with little substance to the analyst, forcing him to revisit all sections due to the vague nature of my comments. He’d spend another few hours on it; then it would be ready to send to the VP.
But with the VP away, I’m in deep shit. Especially with a first-year analyst. Extra especially since my prior roles on credit calls were of the nonspeaking nature.
I smell her first, the pungent aroma of the newest Chanel fragrance. Then I hear her.
“You should’ve just hooked up with his best friend,” Ophelia proclaims with the conviction of someone who’s employed this strategy.
As I round the corner, I see her sitting perched on a desk, talking with the only other female first-year analyst in the group, a cute Southern girl. I considered asking her out once, but there’s something about a girl who knows her way around a debt schedule that doesn’t do it for me.
Ophelia spots me walking down the hall, and I hear her say with her head lowered, “To be continued,” to the girl whose cube she’s commandeered. She then slides off the desk, returns to her feet, and walks toward me.
“Lovely email to receive on a Sunday morning,” she says as we meet halfway down the hall.
“Exactly what I was hoping for,” I say.
Ophelia’s nothing spectacular, but she checks all the boxes to be the focal point for all guys on the forty-fourth floor—former college athlete, from Greenwich, hair the color of the toilet water at Brother Jimmy’s on Saturday night—you know the type. A couple weeks ago, I saw her enter the bathroom with her hair down, only to reappear at her cube twenty minutes later with her hair in a bun. Henceforth, in my head, she’d always be referred to as “dumps.” She needed to be knocked down a peg after her confidence skyrocketed in the first month—she was competing for attention with the Bloomberg Terminal.
“So I pretty much have most of the memo filled out—leveraged a bunch of old stuff from the memos of the comps we’re using. Still tweaking the model, but should be able to send you something in the next hour or so.”
“Great.” She returns to her cube as I walk to mine.
I pass by one analyst whose head is buried in a CFA level-three study guide, another who’s got a timer propped on his desk and a GMAT book open, and a third who’s rifling through a stapled document titled “Vault Guide for Private Equity Interviews.”
“Thought you had a protected weekend,” I say as I see the steam rising from the humidifier in Bart’s cube.
He pops his head up—a few strands of hair poke out around his forehead through his backward snapback hat. “Yeah. In-laws in town though. Can stream the game here—not missing the wildcard game to hear about my mother-in-law’s new watercolor paintings. What you cranking on?”
“Gotta run with this CRM process. Just a revolver, but new name and no VP on credit call.”
Bart stands, coffee mug in hand, and gives me a hard look. “Better get smart on the business and industry. They can be real sticklers with new names, especially if we’re gonna be losing money in their credit facilities.”
It’s the type of thing fellow junior-banker peers say to one another for some reason, as if there isn’t enough stress already from those above us.
“Yeah,” I say as I comb through the industry research reports saved in the drive, trying to figure out a plan.
“And,” Bart continues as he leans over the partition dividing our cubes. “You really gotta be able to justify the add-backs.” He taps the cube divider with the tip of his middle finger as if to emphasize the point. “That’s crucial. They’re gonna grill you on that. Justifying those EBITDA add-backs will make or break this process—definitely the difference maker between getting through credit.”
His advice is useful and appreciated, but his delivery makes me want to crack his coffee mug on his head.
“Sounds good. Thanks, Bart.” I make eye contact with him as I put on my headphones, though the wire dangles by my feet.
Though the bullpen is relatively quiet this Sunday, the cubes of most of the familiar-looking first-year analysts are occupied. As I trudge through the research reports on my computer, taking notes on both the business and industry—notes I hope will help me sound relatively competent on tomorrow’s call—I’m periodically distracted by two first-year analysts who stand in the hallway a few feet from me, tossing a Nerf football just close enough to one another so as not to expose the fact that neither knows the proper way to throw a football.
“Dude, that’s savage. Pure savagery,” says one with an unstructured Polo ball cap propped up on his head, revealing a tuft of blonde hair on his forehead. He looks like it’s “Take Your Son to Work Day” and he got lost in the office. On his left wrist is one of those Swatch watches that works three hundred meters below water, in case he wants to take a quick midday dive in the Mariana Trench.
“What choice did I have?” says the other with a smug grin as he catapults the mini-Nerf football to his partner like it’s a shot put. I feel bad for this guy. Rumor has it, his go-to move on Saturday nights is to take girls to the forty-fourth-floor corner conference room and dazzle them with the view of New York Harbor and a bottle of Pinot Noir. No word on which was more expensive—the wine or the “date.”
“But hardcoding your WACC in a board deck?” says the guy as he catches it and shakes his head. Then he tucks the ball under his arm and removes his BlackBerry from the pocket of his corduroys. “Fuckin’ A,” he says as he scrolls through an email that most likely will end this game of catch. Then the small scrolling-ball in his BlackBerry pops out of his phone.
“Dude, you need to download the BlackBerry Work app on your iPhone. Life’s much better with one phone,” says his partner.
“No way. Gotta separate church and state,” he says, now on his hands and knees searching for the little ball.
A few rows of cubes away, another first-year analyst standing with a baseball bat in his right hand, the barrel resting on his shoulder, fields questions from a seated analyst. While I can’t hear the question, I see the confidence grow on the batter’s face. The content of the conversation is lost due to the distance between us, but the cadence carries. As he prepares to answer a question, he lowers the bat, letting it slightly swing from his left hand, before taking a batting stance. Then, as his mouth starts moving, he brings the bat up in a cocked position, his hands a good three inches apart, and takes a haphazard cut that nearly wipes out the deal toys perched on all adjacent cubes.
“GDP still includes government spending—i.e., welfare checks, which don’t really accurately reflect economic value-add,” says one analyst to another as they exit the bathroom.
Down the hall, I catch a glimpse of another first-year analyst showing his parents around the floor.
These are the future bullpen tenants.
The ding of a new email from Ophelia returns my attention to my computer. The message contains the most recent version of the CRM memo.
CRM memos are usually around forty pages—comprehensive documents replete with text, charts, graphs, and other graphics with a very specific template. Beginning with the transaction overview, the memo then describes the company and industry, after which it presents historical financials with a discussion on relevant items and growth patterns. Then there is the presentation of all three model-cases: management, DB credit, and downside case, with detailed explanations on assumptions used. This is the section in which the all-important “paydown” is shown. After the three cases, there are a few pages on DCF valuation, then the football-field valuation comparing the different methods used. The appendix, sometimes even longer than the actual memo, details the comparable companies used, as well as any extra information deemed important by the bankers. Typically, the longer the appendix, the less likely the transaction is to get through credit.
Ophelia Green: Hey, just sent over memo
William Keenan: Thanks, will take a look now
It’s always helpful when someone emails you, then moments later contacts you via a different medium to tell you she’s emailed you.
The first few pages look fine as I scan the PDF of the document. While it needs to look presentable, most of this information will be relayed to the credit team during our phone call, so it’s more important that my verbal explanation is on point, as opposed to what’s on the page.
Then I get to the model. The management, or upside, case is usually driven by laughable assumptions. Growth vastly exceeds peers, and if you forecast the model another ten years, the company is usually big enough to take over the Milky Way.
As you likely don’t recall, the goal is to have the paydown in year seven of the DB credit case be around 53 percent. This is more important when actual debt is being issued. With the revolver, tweaking the paydown shouldn’t be too difficult. A flood of numbers peppers the model output pages. I quickly dart to the DB credit-case paydown row. Year seven paydown—(1,999%).
Ophelia Green: FYI, I have no idea what I’m doing with the model haha
That is for damn certain.
William Keenan: Can you get out of the master and I’ll take a look
Ophelia Green: lol sure. sry
I scan the page and the items that drive the cash available to pay down the debt—all dollar amounts in those rows look reasonable. Then my eyes track left, column by column, and I spot the likely culprit—the percentage paydown formula doesn’t look to have been dragged all the way right, so I redo it. This fixes the issue partially with the paydown (now at 86 percent). Clearly, there are more issues, but I can futz with that later.
“What you jammin’ on?” Phuc taps the top of my cube with his right hand. His Oakley sunglasses are upside down, hooked behind his head.
“Credit call tomorrow,” I say. I spot the handle of a squash racket poking out of the duffel bag slung over his shoulder. I want to whack him with it.
“Live deal?” he says.
“Yeah, I guess,” I say.
“Cool account?”
“It’s fine.”
“I pulled an all-nighter last night. This sell-side is taking over my life.” While it might initially seem reasonable to sympathize with Phuc, I know there’s a part of him, probably a big part, that doesn’t mind and maybe even likes spending Saturday nights at the office. It’s the most densely populated area on Earth containing individuals like him. I’m convinced there are even junior bankers who hang out on weekends at the office just because that’s where they prefer to be.
“Term loan? Financing? Any mezz piece?” he says as he peers over my cube, trying to catch a peek of my monitor.
“Credit facility,” I say.
“Jeez, that’s easy, man.”
“So you wanna do it for me?” I pick up the compressed air duster canister next to my monitor and spray it in Phuc’s direction.
“Bro! Come on!” He backpedals a few steps. “You have any idea how bad that is for the environment?”
“Bad for the environment? All you ever talk about is that sell-side you worked on, advising a massive plastics manufacturer that produces polyoxybullshit, which is probably killing dolphins by the dozen and fuckin’ with ozone layers.”
Phuc checks the grip of his squash racket then looks back at me.
“Polyoxybenzylmethylenglycolanhydride,” he mutters as he begins his trek down the row of cubes, eyeing his next victim.
Aside from the paydown, the next most important element in the CRM process is the “Structuring EBITDA” section. While usually only a page or two in the memo, this is where the credit committee focuses most of its attention. Since EBITDA drives the initial leverage at which the bank enters the credit (and thus whether it’s a viable transaction from a regulatory standpoint), coming to a consensus on which EBITDA to use is a focal point of all calls with credit.
Earnings before ITDA—a proxy for a company’s operating cash flow and an industry metric widely accepted as defining the cash flow a company generates from its operations, which excludes components like how the company finances itself. Though it’s relatively straightforward to calculate EBITDA by looking at a company’s financial statements,22 the “adjusted EBITDA” number, a figure bankers obsess over, is a product of alchemy and deceptive artistry. While EBITDA isn’t a GAAP metric and won’t be found in financial statements, nearly every company provides an adjusted EBITDA figure in some sort of document, whether it be an earnings presentation, information memorandum, or something similar. The “Structuring EBITDA” section of the CRM memo reconciles the company’s true EBITDA figure to the adjusted EBITDA number with a series of “add-backs,” all of which must be justified in detailed explanations.
Add-backs are traditionally costs that companies determine are one-time events, and thus not indicative of the company’s future ongoing operations. For example, if a black-swan hurricane forces a plant shutdown, a case could be made to have the cost incurred to return the plant to production added back. If a company has an unusual legal fee for a restructuring or some other atypical event, that cost could also be added back. Every add-back is scrutinized by the credit team to ensure it will not be an ongoing cost.
Ted stops by the office around noon to send a couple emails and charge his lunch to DB.
“How’s the CRM going? Ready to lead your first credit call?” he says as he peruses Seamless.
“Nope. Any advice?” I say.
“Drop your voice a couple octaves when you talk to them. It’ll make you sound smarter.”
“I’ve given you all the data points I have,” Bart says into his personal cell phone, his hand cupped over the receiver. “For the fifth time, I’m finishing up and should be done in thirty minutes.” When I make eye contact with him, he puts his index finger to his temple, then pulls the trigger with his thumb. “Just get me something from wherever you order…I don’t care…fine, we’ll go out. The quicker I get off the phone, the quicker I’ll be done. Okay, hun. Bye.” He hangs up then looks at me. “This never happened before I started banking.”
I spend the evening fixing the model and staring at one particular add-back that will require some of my best stuff to justify.
* * *
“But isn’t that tournament part of the FedEx Cup?” says the credit officer. I adjust my headset, then wipe the beads of sweat from my forehead. A new batch forms instantaneously.
“Technically, all PGA tournaments provide players with FedEx Cup points. But the event Marx sponsors isn’t part of the FedEx Cup playoffs is what I mean.”
After spending forty-five minutes having moderate success walking the credit officer through the Marx Industries CRM memo, we are back at the single issue that could determine whether this transaction occurs: an EBITDA add-back.
My issue is twofold—first, this isn’t an add-back we can breeze through, given its unusual nature. The company is saying they have incurred costs to provide merchandise at a PGA Tour event it sponsors, and that the costs should be added back; second, it’s hard to make a case for this cost being a one-time event, given that it’s been the same cost the past three years. But it’s only $0.2 million—who cares, right? Well, this accounts for 6 percent of the company’s adjusted EBITDA, not an insignificant amount considering the leverage the company already has, which is high for a company in this industry, especially for one this small. Bottom line—I gotta figure this shit out and justify this to credit.
“So how is the FedEx Cup point relevant? And I don’t quite see how Tiger’s comeback relates,” says the credit officer.
Both those points I brought up are in no way relevant, but it’s the best I can think of.
“Look,” continues the credit officer. “At almost five-and-a-half times leverage and an interest coverage ratio at under one, this company is already at risk of breaking covenants if you look at the term sheet in appendix two. Without this add-back, the numbers just don’t work.”
“If you look historically at the sponsorship contracts of PGA tour events, they’re between two and three years. Marx’s contract expires this year, its third year as the event’s sponsor,” I say, gaining momentum. “And it’s almost certain they won’t renew the contract to sponsor it.”
“And why’s that?” says the credit officer.
“The old chairman of the board,” I say. “He was a big golfer—played in college and had a cup of tea on the Hooters Tour before he decided to join the corporate world. He was the driving force behind the sponsorship. But he’s out as of last December. The new chairman has no ties to golf.” I remember seeing the picture we cropped of him to put in the memo—he didn’t look like a golfer. His face reminded me of my second-grade art teacher. “Not to mention the PGA has publicly stated they want to diversify the locations of their events, and the course where the Marx event is played is within twenty miles of four other PGA tournaments. Given it’s the most recent addition to the circuit, they’re most likely to scrap the event altogether.”
“I see,” says the credit officer.
I have him on the ropes. “Let’s not forget that at its core, this is a good business,” I say. “Hockey-stick growth in all end-markets, two product launches happening next quarter, iron-clad contracts with industry leaders. And they’re not asking for an accordion for the facility—these guys know the cash they need for working capital.” I pause. “That’s prudent cash management.” It’s something I heard Leighton say a few days ago—sounded smart.
Ted leans back in his chair, just far enough that I can see his face. “Secret sauce,” he whispers.
“What?” I respond, covering the microphone on my headset.
“Work ‘secret sauce’ into the explanation,” he says.
“Their cash-flow characteristics do appear solid relative to peers when I look at page thirty-two of the memo,” says the credit officer.
“It’s sort of their secret sauce,” I say. Ted flashes a thumbs-up.
“Okay. I think this works if we can give them credit for the $0.2 million PGA add-back, but I’ll have to give it some more thought. Also, I’d prefer to see a bigger haircut to the downside case-growth assumptions, but we can table that for now. I’ll be in touch later today with a decision.”
“Terrific.” I hang my headset on the cubicle divider and lean back in my chair. A few moments later, Ophelia, my analyst who’s been listening to the call on mute, walks down the hall and flashes me a double thumbs-up before futzing with her infinity scarf.
“Tell me you made all that shit up,” says Ted as pokes his head around the cube divider.
“Details—hallmark of any good lie.”
“Starting to sound like a real investment banker. I like the bit about the chairman of the board—gonna try to work that into my next credit process.”
John Bukowski: high time we get luncheon. Swing by my desk
William Keenan: swing
John Bukowski: swing
William Keenan: swing
John Bukowski: swing or I’ll tell everyone you use Rogaine
William Keenan: don’t care. swing
John Bukowski: swing and I’ll get that HR chick I went to school with to answer your DMs
William Keenan: gimme 5. Gotta do system update or computer will explode
John Bukowski: 4:59
John Bukowski: 4:58
I click a series of “OK” buttons instructing me that Microsoft Office updates need to be installed. After the three-minute installation is complete, the computer restarts and greets me with an unfamiliar black screen peppered with words like “bitlocker” and “encryption,” prompting me to input a ten-digit password.
Introducing the 7s.
While resources like BIS, MAKS, Presentations, and FactSet are resources DB provides to help with actual work content, the 7s are DB’s “internal” IT team headquartered in Chennai, India. In my first week of work, I spent more time jawing with them on the phone than I did speaking with anyone on the forty-fourth floor. Their name is derived from the phone number you dial to reach them: you basically hit seven a bunch of times until someone with an Indian accent picks up.
I won’t bore with you the conversation—below is the mandatory report they sent following our call.
And this is one of the more painless interactions I’ve had with them.
John Bukowski: -8:53
John Bukowski: -8:54
John Bukowski: -8:55
William Keenan: swinging now
* * *
“Lotta dentist appointments recently for analysts in the bullpen,” says Ted.
“Must be all the sugary treats in there rotting their teeth,” I say. “When do they actually quit?”
“Couple weeks—right after we get bonuses,” says Ted. “You hear back from credit?”
“Not yet.” I eye my inbox, which is jammed with emails of increasing panic from the VP who entrusted me with handling the credit process; he’s requesting updates.
“By the way, to capitalize operating leases, do you know—” I begin.
“Rule of seven,” says Ted. “Multiply it by seven.”
I nod, then lean back in my chair. “What do you think banking was like before PowerPoint, and Excel models, and BlackBerries?” I say.
“Better…or at least more useful, I’d imagine,” says Ted. “No hundred-page pitch books, CIMs with ten thousand charts…just an old white dude at a bank doing arithmetic on his HP 12c and telling a CEO to buy something.”
“I did it!” shouts Joel from the bullpen. He emerges from the bullpen, arms raised high, before strutting to Ted’s cube. “The perfect order from Toloache.”
“Bullshit!” says Ted. He jumps out of his seat and follows Joel into the bullpen. Another email from my VP pops into my inbox. I ignore it and trail Ted into the bullpen.
“Many have tried, all have failed. I have a lot of people to thank. It was not an individual effort by any means,” says Joel as he slowly loops around the bullpen. “First and foremost, I need to thank my mom for giving me genes that ensured I’d be hungry around the clock. I also need to thank my fifth-grade teacher, Ms. Snodgrass, who said I could do anything I wanted to, if I channeled my energy properly.” Joel fields a couple high-fives from other senior analysts before returning to his cube, where Ted is now seated and inspecting the Seamless order displayed on Joel’s computer.
“What’s the deal?” I ask.
“Ted has ordered dinner from Toloache hundreds of times and claimed it’s impossible to place an order of exactly twenty-five dollars,” says Joel, referencing the twenty-five-dollar limit the bank places on our dinner orders. “But lo and behold, the star Industrials senior managing analyst finds a bust in the menu and does the impossible.”
Ted stands from Joel’s chair. “Clearly a glitch with the pricing of the side of pico de gallo when you don’t add chips. And what the hell is huitlacoche?”
“I went deep in the menu. Gotta celebrate their entire catalog,” says Joel.
“This doesn’t count,” says Ted.
“Don’t be jealous,” says Joel.
“Joel,” says Ted as he gently lifts Joel’s bright blue New York Giants tie. “You make it impossible to be jealous of you.”
“When are we getting our vests?” I ask.
“They had an issue in their facility where they manufacture them,” says Joel.
“Sounds like a reasonable add-back to me,” says an analyst’s disembodied voice from across the bullpen.
“But should arrive in two weeks,” finishes Joel.
“And my sleeves?” asks Ted.
“They’re on back order,” says Joel.
“Lovely. Keenan, you want to knock out those two compliance modules?” says Ted. We return to our cubes and open the email from compliance marked “URGENT” that we both received earlier in the day. This week’s module: preventing discrimination and harassment in the workplace.
“Ready?” says Ted from his cube.
I open the module just as an email notification appears in the bottom right corner of my monitor. “Marx Industries CRM Decision: APPROVED” is the subject.
“Let’s fuckin’ do this,” I say.