The bond market is as essential to corporations as is the stock market in today’s complex business world. Bonds, or securities, offer companies the opportunity to borrow funds at fixed interest rates over an extended time period. With support from the Joseph F. Anderson ’44 Internship Fund, Ujjwal Pradhan ’15 is learning how to assess the financial risk associated with bonds while interning with Priority Capital Management (PCM) in New York City.
A poorly rated bond, known as a junk bond, must offer a greater return to compensate for its associated risk. PCM is a firm that manages high yield, and thus riskier, bond investments for institutional clients and high net-worth individuals.
As a credit research analyst for PCM, Pradhan performed three main duties in the office. One of his responsibilities was completing fundamental valuations on high yield corporate bonds. He studied the entirety of a company, including its general market, competitors’ performance and corporate structure.
For example, Pradhan researched whether a printing company was adapting to the current digitalization that similar businesses are undergoing, how a construction company was dealing with declining home-building projects and how fluctuating transportation costs were affecting a wine producer. He also researched chemical suppliers, home appliance producers and car rental companies, among many other companies.
Researching a broad range of industries was Pradhan’s favorite aspect of the internship. He developed an understanding of the different variables or uncertainties that these companies face and learned how to assign a dollar value to the risk different bonds present.
Pradhan also composed research reports to highlight the fundamental strengths and credit quality of companies in which PCM is invested. He reviewed the companies using a SWOT analysis, an examination of strengths, weaknesses, opportunities and threats are examined.
To complete this analysis, Pradhan studied public filings that include quarterly reports and other performance indicators from the past five years, encompassing periods before and after the financial crisis struck. Pradhan also constantly monitored news feeds to follow relevant stories pertaining to companies assigned to him for review.
Once he completed his analysis of a company, Pradhan presented his findings to the investment team. He discussed new companies that PCM could invest in or offered research on the financial status of PCM’s current investment portfolio. He said that these presentations “were pretty nerve-wracking at first because I was interacting with the company leaders, but I became more comfortable with them as the summer went on.”
Pradhan’s boss would ask questions regarding each corporate statistic and it effect on the bond’s risk before explaining how it impact the company’s decision to invest. Pradhan found this dialogue “helpful in understanding how a company is doing business and how an investment in the company could add value to the PCM portfolio.”
Pradhan appreciated the firm’s small size and how easily he could speak with senior analysts. He “wanted to get a taste of what the finance industry is like,” and see how economic principles function in real world settings. After interning with PCM, Pradhan said he is confident in pursuing a career in the financial sector after graduation.
Pradhan is a graduate of Budhanilkantha School (Kathmandu, Nepal)