A quick review of the DCM (Debt Capital Market) analyst’s job…

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what an analyst in Debt Capital Market (DCM) works on, on a daily basis.

What does DCM consist in?

The Debt Capital Market or DCM teams are used to cover the debt financing needs of organizations via financial markets. For this reason, they assist companies in the issuance of bonds and loans. This job is perfectly centered between corporate finance and financial markets! The clients of a DCM team are very broad and regroup corporate, financial institutions and governments.

The DCM analyst’s job is therefore a financing-related job like the Equity Capital Market (ECM). However, it differs by the nature of the financing offered: debt or equity.

Why would a company resort to DCM rather than ECM?

The main advantage of issuing debt rather than equity is that a company will not have to sell any share of its capital. The company’s shareholders will maintain their shares in the company, in order to keep control of it. The counterpart to this is the repayment obligation inherent in the financial debt, which does not exist when the company issues shares. Indeed, legally, there is no obligation for a company to pay dividends to its shareholders, whereas the repayment of interest and principal on the debt is contractually binding.

The DCM is therefore an effective solution to attract a large number of clients such as companies, but also actors unable to intervene in the equity markets: the governments. Indeed, governments, supranational institutions or sovereign wealth funds cannot sell part of their capital; they find in the bond market a source of liquidity. Traditionally, countries offering solid guarantees of interest payments and bond repayment – the United States, Germany and France – are the biggest players on the bond markets.

What does an analyst in DCM work on?

The DCM team of a bank works mainly on three dimensions: commercial relationship, structuring, and syndication. There are usually dedicated analysts devoted to each task.

Commercial relationship

Through the commercial relationship, the DCM team will try to understand the client’s needs and find a customized solution. The objective is therefore to define the amount of debt to be issued, based on the client’s financing needs, outstanding debt and solvency. This origination work therefore requires an overall view of the client’s profile and capital structure to ensure that its rating will not be affected by the new bond issue (about credit rating you can read this post.

Structuring

This dimension is more technical. This is the case when an investment bank has to offer more sophisticated products such as convertible bonds, bonds with warrants or bonds redeemable in shares. Structuring is mainly concerned with hybrid debt issues. These products offer different levels of risk for investors who will participate to the issuance.

Syndication

Syndication relates to oversized loans that requires allocation among different banks.

Why do DCM jobs appeal so much to business school students?

First of all, it is the dynamic working environment that investment banking constitutes that attracts young graduates. Like ECM, DCM is marked by a culture of high standards and maximum commitment, with highly responsive teams and extremely competent colleagues. Working in a high-powerded team is very stimulating, and often makes it possible to approach the workload with less apprehension and to rapidly increase one’s competence.

The position of DCM divisions within investment banks also makes the job really interesting because the DCM can interact with other departments like M&A. Because as we have seen together, a DCM job requires the ability to manage theoretical models, market trends and legal specificities. For that matter, a DCM career can be very challenging, and this is what young graduates seek for.

Resources

Youtube Interview with a DCM originator at Natixis

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About the author

The article was written in November 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).