Credit research and shadow-rating support for US high yield and convertible bonds for a US based hedge fund
About Client:
A US-based multi-billion-dollar hedge fund with high yield and convertible strategies. Had offices in New York and London.
Business Problem:
Client wanted active research across the coverage universe of high yield and convertibles. However, the majority of the issuers were unrated. Client didn’t have an expertise in rating research, hence hired ValueAdd to arrive at shadow ratings for its unrated universe of companies.
ValueAdd Solution:
Three senior credit research analysts from ValueAdd with prior rating research experience were allocated for this engagement.
Agency-equivalent rating framework and back-tested models:
- Designed the sector-wise rating framework to model issuers.
- Fine-tuned agency rating framework to suit credits, as per region, size, etc.
- Build strong back-tested rating models to arrive at scientific agency-equivalent or shadow rating for the unrated universe
Assigned the ratings and performed regular surveillance:
- Initiated ~60 credits across ten sectors within agreed timelines & budgets.
- Regular risk rating surveillance for the entire coverage.
- Successfully implemented the planned ramp-up of names.
Regular Maintenance
- Currently, three-analyst team to monitor & update the coverage for earnings, credit event/corporate actions, and daily news
Benefits Delivered:
- Well-informed investment decisions based on accurate agency-equivalent rating or shadow rating.
- Cost-effective research support
- Cost savings of ~US$50,000 by not hiring a rating analyst in New York.
- The India team worked overnight of the US, thus offering 24/5 productivity
- Increased client bandwidth for effective fund management