From Feast to Famine and Back Again: Investing Through Credit Cycles

Block Week 2024 (3 credits)

PROFESSOR: Ellen Carr TEACHING ASSISTANT: Alex Nuta

Email: ec2895@columbia.edu Email: ANuta24@gsb.columbia.edu
Phone: 310-497-9069 Phone: 973-220-0856
Classroom: TBD
Office Hours: By appointment

Communications from the professor and teaching assistant about the course will take place through Canvas.
Students should make sure they regularly check for announcements and messaging notifications.

COURSE DESCRIPTION

This course studies the evolution of the high yield bond and loan markets, and the behavior of market participants from
peak to trough and back again through various credit cycles. Through lectures, case studies, and guest speakers, we
discuss through-cycle changes in valuation, structure, capital raising, liquidity and other investor considerations.
To provide context, we will use the Caesars/Harrah’s 2006 leveraged buyout as a case study that illustrates each phase
of the credit cycle. Four other case studies (HCA, NXP, Realogy and a contemporary case TBD) will be used to highlight
the two extremes of the cycle (“feast” and “famine”), and how they build on the calmer (some might even say boring)
phases of the credit cycle.
Students should leave the course with an understanding of the concept of the credit cycle and the ability to identify peak
and trough conditions and behaviors.

REQUIRED PREREQUISITES AND RELATED COURSES

The learning in this course will utilize, build on and extend concepts covered in the following core courses:

Core Course Connection with Core

Corporate Finance 1. Opportunity cost of capital
2. Risk
3. Firm valuation model
Global Economic 1. Causes of business cycle
Environment I 2. Role of financial markets in the economy
Financial Accounting 1. The accounting model
2. Revenue and expense recognition
3. Resources and obligations-measurement and disclosure
Students will be expected to have mastered these concepts and be able to apply them in the course.

While not prerequisites, Capital Markets and Security Analysis are relevant to this course.

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STUDENT LEARNING OUTCOMES

• Develop an understanding of the credit cycle and a view of where we are right now in that cycle.
• Learn to identify peak, trough, and normalized conditions in the corporate credit markets and the impact of the
cyclical point on the cost of debt capital (for issuers)/risk-adjusted return prospects (for investors).
• Understand the various types of corporate debt instruments (bonds, loans, secured, unsecured, floating rate,
fixed rate) and how investors and companies choose the type of debt to invest in/issue depending on the point
in the credit cycle.
• Analyze large-profile leveraged buyouts (LBOs) from a creditor perspective and become familiar with the types
of debt instruments used to underwrite LBOs.
• Learn about the investment opportunities available to investors at all points in the credit cycle and sources of
alpha for leveraged credit investors.

CLASSROOM NORMS AND EXPECTATIONS

Core Culture
Students are expected to adhere to CBS Core Culture in this class by being Present, Prepared, Participating.

Inclusion, Accommodation, and Support for Students

At Columbia Business School we believe diversity strengthens any community or business model and brings it greater
success. The School is committed to providing all students with equal opportunity to thrive in the classroom by providing
a learning, living, and working environment free from discrimination, harassment, and bias on the basis of gender,
sexual orientation, race, ethnicity, socioeconomic status, or ability.

Students with documented disabilities may receive reasonable accommodations. Students are encouraged to contact
Columbia University’s Office of Disability Services for information and to register for services.

Columbia Business School adheres to all community, state, and federal regulations as relate to Title IX and student
safety. Read more about CBS’ policies to support Inclusion, Accommodations and Support for Students.

Honor Code and Academic Integrity

The Columbia Business School Honor Code calls on all members of the School community to adhere to and uphold the
notions of truth, integrity, and respect both during their time in school, and throughout their careers as productive,
moral, and caring participants in their companies and communities around the world. All students are subject to the
Honor Code for all of their academic work. Failure to comply with the Honor Code may result in Dean’s Discipline. Here
you can review examples of Academic Misconduct which may result in discipline.

Course materials (videos, assignments, problem sets, etc.) are for your use in this course only. You may not upload them
to external sites, share them with students outside of this course, or post them for public commentary without the
instructor’s permission

Course Attendance Policies

Students from all programs should review and be familiar with the MBA Core Attendance Policy and the Exam Policy.
The attendance policy for this course mirrors the Core Course Policy:

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 • Students who miss an entire day of block week due to unexcused absences will receive a maximum grade
of P1.
• Students who miss more than one day of block week will receive an F in the course.
Note: Weddings are not an excused reason to miss an exam or class.

Please complete the Canvas excused absence form if you are absent for an excused reason.

The class has regular, scheduled breaks. Please use this break to leave class. Laptops, phones, and other technology
should not be used during lectures and guest speaker sessions other than for note-taking or as directed for in-class
modeling exercises. Excessive in-class technology use, which will be monitored by the TA, will be reflected in a
decreased class participation grade.

Generative AI Policy
Students in this course may only use Generative AI tools, such as ChatGPT, for idea generation and must include a
citation describing any usage. Using these tools to generate responses to assignments violates CBS's Honor Code, and I
will report suspected instances of plagiarism. Please contact me if you have any questions about this policy.

COURSE ROADMAP/SCHEDULE

See the final page of the syllabus for a detailed course agenda. Note that this is subject to change based on the
schedules/availability of our guest speakers.
Assignments Due (Assignment
Session Topic(s) Required Pre-Readings
Types)

1 Syllabus/course overview Selected memos from Howard Complete two pre-assignments (C:
Marks Indiv)
1/16/2024 Introduction to the leveraged
credit markets Caesars case study Read syllabus carefully (C: Indiv)

Introduction to forecasting
cash flow
Introduction to credit
structuring
Credit structuring lecture Complete pre-class survey (C: Indiv)
Selected articles on leveraged Concept check (C: Indiv)
credit (in Canvas files,
Guest speaker questions (C: Indiv)
“Supplemental Reading”
(optional/extra credit)
folder)

2 Peak conditions in leveraged HCA case study HCA case study (A: Group)
credit markets (“feast”)
1/17/2024 Guest speakers materials (CDS, Daily participation survey (C: Indiv)
CDS HCA, CLOs)
Guest speaker questions (A: Group)
CLOs

Distressed debt exchanges

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 3 Trough conditions in NXP case study NXP case study (A: Group)
leveraged credit markets
1/18/2024 (“famine”) APF case study Daily participation survey (C: Indiv)

Distressed for control CZR in bankruptcy case study Guest speaker questions (A: Group)

Bankruptcy investing Howard Marks memos

4 Leveraged finance through RLGY case study RLGY case study (A: Group)
cycle: Realogy from feast to
11/20/2023 FRB SNC overview Daily participation survey (C: Indiv)
famine and back again
CZR debrief Guest speaker questions (A: Group)
Perspectives on the
markets from practitioners

Federal Reserve Bank (FRB)

guidance for leveraged
lending

Outlook for leveraged finance

CZR case debrief

5 Private credit overview Private credit readings from JP Contemporary case assignment TBD
Morgan (A: Group)
1/21/2024 Class wrap-up
Daily participation survey (C: Indiv)
(virtual)
Guest speaker questions (A: Group)

Final exam (C: Indiv)—On Canvas,

to be taken any 3 hours between
noon and midnight

Final Project due Friday 2/2/24 (A: Group)

RECOMMENDED COURSE MATERIALS

Your pre-readings are (1) a selection of memos from Howard Marks (one of our guest speakers), (2) the Caesars/Harrahs
case study (in multiple parts), and (3) several sell-side high yield strategist outlook pieces for 2024. All of these are
available on Canvas, as are all of the case studies used in the course. While it is not required reading, you are strongly
encouraged to buy Mastering the Market Cycle: Getting the Odds on Your Side by Howard Marks (one of our guest
speakers), with particular attention to the chapters entitled “The Credit Cycle” and “The Distressed Debt Cycle.”

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For reference, you may also want to buy The Credit Investor’s Handbook by fellow CBS adjunct Michael Gatto (and
edited by me). I also suggest reading Caesar’s Palace Coup, the extremely detailed and surprisingly readable account of
the Caesars LBO, bankruptcy, and emergence. As an added bonus, a few of the many “characters” in the book (e.g. Steve
Winograd) will join the class as guest speakers. Finally, for a breezy, entertaining and insightful insider’s perspective on
the world of distressed debt, check out Damsel in Distressed by Dominique Mielle.

METHOD OF EVALUATION

Final grades will be based on the breakdown below.

Pre-class assignments (LBO model completion, 5%
CZR/Marks memo analysis)
Participation 15%
4 Nightly Cases 20%
Daily Question Submission 5%
Individual Final Exam 25%
Team Final Project 25%
Team Evaluation 5%
Grading rubrics for all assignments can be found on Canvas.

Pre-Assignments (5% of your grade—Type C/Individual)

Please note that you have two pre-class assignments which must be submitted via Canvas by midnight on Monday,
January 15th. These and all other assignments are detailed on Canvas.

Four Cases (20% of your grade—Type A/Group)

You will complete four case assignments (Tuesday, Wednesday, Thursday and Friday evening homework) in teams. In
order to provide you with feedback useful for subsequent assignments, these will be graded the day after you submit
them. Because of the sheer fatigue involved in a block week, I’ve decreased the proportion of your grade that these
nightly cases represent. Do your best with them; the most important thing is to read the cases and understand the
questions.
Review of next-day presentations (5% of your grade—Type A/Group)
In addition to the case homework, please review the guest speaker presentations (posted on Canvas) in your teams for
the following day and submit 2-3 questions for each presentation via Canvas. This will enhance your class participation
grade, and is an integral part of the course learning. Submission of questions will count for one point on Wednesday,
Friday and Saturday, and two points on Thursday (with two separate submissions) given the “fireside chat” format with
Howard Marks on Thursday afternoon.
Note that guest lecture presentations may NOT be distributed outside the classroom or to anyone who is not taking
this class. Our guest lecturers are generous with their time and knowledge, and in many cases are sensitive to the
broad distribution of their work. Any violation of this rule will be considered a CBS Honor Code violation.

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Final Exam (25% of your grade—Type C/individual)
A timed, open-book/note final exam will take place immediately following the course (between noon and midnight on
Saturday, January 20th). This is an individual assignment. You will have 3 hours once you begin the exam to complete it.

Final Project (25% of your grade—Type A/team)

For the final project, you will act as market practitioners and evaluate the securities in the capital structures of the cases
discussed in class and used in your nightly homework assignments (CZR, M, HCA, NXP, RLGY, COIN and TWTR) to
construct an optimal high yield credit portfolio. You are also permitted to include cash and the high yield and loan
indices as investments in your optimal portfolio. Additional detail can be found on Canvas. This assignment is due Friday,
February 2nd by midnight, and is done in teams.

Participation (10% of your grade)

This is a highly interactive class—and its success depends on your contributions and participation. I will give full credit
(10%) to everyone who shows up to every class and completes each of the daily participation surveys (which also ask
you to provide feedback on the guest speakers). I will allocate extra credit points to those of you who participate in
thoughtful and meaningful ways. Finally, I will deduct points from anyone who participates in a distracting way.
To minimize ambiguity and maximize fairness, I will utilize several methods of evaluating attendance:
• Attendance: There is a daily participation survey to record your attendance in Canvas (“Quizzes” tab). If you
anticipate missing any sessions, please let us know in advance, and we will give you a brief reading and writing
assignment related to the missed lecture to make up for your absence.
• Quality of your class participation: When you take the participation survey, you will be asked to list any
contribution to class discussion or insightful questions. To count towards your participation grade, an in-class
comment should demonstrate familiarity with the subject matter or provide a different perspective on the issue
being discussed. A question should reflect pre-reading of the presentation and seek deeper insight.
• Recognition of “over-participation”: Please be mindful of the quantity of your comments in class. Allowing
ample opportunity for 50+ students to participate in five days is a difficult balancing act.
• Submissions to Discussions tab on Canvas: Because there are varying levels of comfort with speaking up in
class, contributions to the Discussions tab will also count towards your participation grade. To count as
participation, a submission needs to be relevant to the high yield market and/or one of the cases we’re working
on during the class, and you need to provide a concise summary of the pertinent points of the article along with
your personal view of the points (agree? Disagree? Want to find out more?) We’ll reserve time at the beginning
of each class to discuss these.

Team evaluation (5% of your grade)

With half of your grade based on team assignments, it’s important to evaluate each student’s contribution to the team’s
efforts and output over the course of the week. If you do not fill out your survey, you will lose a point (of the total 5
available). In order to incorporate the final project (a team assignment), this will be due the same day as the final project
(Friday, February 2nd at midnight).

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COURSE ROADMAP (SUBJECT TO CHANGE)
Note: The final day of class (Saturday January 20th) will be VIRTUAL. This is a half-day of actual class since the final exam
takes place in the afternoon.
Tuesday 1/16/24
BUILDING BLOCKS
Credit markets, credit analysis,
structural issues
9-9:30 Course roadmap/syllabus
overview
9:30-10:30 Lecture: Introduction to the
credit markets
10:30-10:45 Break
10:45-12 Lecture: Introduction to the
credit markets
12-1 Break/get lunch
1-2 Lecture: Introduction to credit
analysis--cash flow forecasting
2-2:30 In-class caselet (in teams):
Macys
2:30-3 Macys caselet debrief
3-3:15 Break
3:15-4:30 Guest speakers: Natasha
Labovitz and Sid Levinson, Debevoise
(legal perspective)
4:30-4:45 Concept check
4:45-5 HCA/CZR case assignment,
survey completion
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Wednesday 1/17/24
FEAST
Leveraged finance in the go-go years:
Peak cycle LBOs/reach for yield
9-10 Basic credit market stats: 2005-2007 9-10 Basic credit market stats: 2008-2009 8-9 Basic credit market stats: 2010-2014 /
/ 2020-2021
10-10:15 Break
10:15-11:15 Guest speaker: Saul Doctor,
JP Morgan (single name CDS:
history/case studies)
11:15-12:15 Dividend deals; concept
check review; covenant Q&A
12:15-1:15 Break/get lunch
1:15-2:15 Guest speaker: Jim Ely, Pricap 12:45-2 Guest speaker: Jason Yacavone,
Advisors (HCA banker perspective)
2:15-2:30 Break
2:30-3:45 Guest speaker: Barak Klarfeld, analysis, bond math; set up RLGY case
JP Morgan (CLOs)
3:45-4 Break
4-5 Lecture: Distressed
exchanges/NXP/CZR case assignment
Thursday 1/18/24 Friday 1/19/24 Saturday 1/20/24 VIRTUAL
FAMINE THROUGH CYCLE FUTURE
Leveraged finance at the trough of the Leveraged finance through cycle: Feast,
Leveraged finance in 2024 and beyond:
credit cycle: Distressed famine, and back again in one capital
Private or public credit?
exchanges/loan-to-owns/defaults structure
/ 2015-2016 / 2020 / 2022 2017 - 2019 9-10 Guest speaker: Tod Trabocco, Aksia
9-10:15 A View from the Fed: John Colwell, (private credit)
10-10:30 NXP debrief Robert Cote, FRB Shared National Credit
Program 10-10:15 Break
10:30-10:45 Break 10:15-10:30 Break
10:15-11:15 RLGY and private credit
debriefs, set up exam & final project
10:45-11:45 Guest speaker: Amy Rice,
10:30-11:45 Where are we in the credit
Oaktree (APF loan-to-own approach)
cycle now? Panel: Bob Kricheff, Shenkman
11:45-12:45 Break/get lunch 11:15-11:45 Break/course evaluations
Capital; Vivian Lau, Sixth Street; Martha
Metcalf, Schroders 11:45-noon Course wrap-up
DCG (investing in CZR during bankruptcy)
11:45-12:45 Break/get lunch
2-2:45 In-class exercise: Recovery 12:45-1 Set up private credit assignment
1-2 Lecture: 2023 review / HY outlook for
assignment 2024
Noon-midnight (any 3 hours) Final exam
2:45-3 Break 2-2:15 Break
(take home, open book/note)
3-5 Guest speaker: Howard Marks, 2:15-3:15 Guest speakers: Steve
Oaktree (investing through the credit Winograd, Pennant Park; David Seligman,
cycle) Kirkland & Ellis; Daun Yung, Guggenheim
(CZR restructuring perspective)