Debt Capital Markets interview preparation

Questions

100

Traced to a firm

45

Firms

26

Updated

September 2026

Asked at

All firmsTSTruist Securities5PIMCO4TD Securities4Apollo Global Management3Nomura3Scotiabank3Bain Capital2Houlihan Lokey2Mizuho2Neuberger Berman2Oaktree Capital Management2RCRBC Capital Markets2Carlyle Group1Deutsche Bank1Golub Capital1HPS Investment Partners1Invesco1KKR1Lazard1Moelis & Company1Moody's1Northern Trust1NUNuveen1Rothschild & Co1S&P Global1Wells Fargo Securities1

Topic

All topicsBond mechanics11Duration and convexity6Yield curve and rates5Credit spreads5Credit analysis and ratings13Credit modelling9Primary issuance9Syndication and loans10Structured credit7Covenants and documentation5Liability management5Indian debt markets7Fit8

Level

AnyCoreIntermediateHard

Type

AnyTechnicalBrainteaserMarket viewCaseFit

1. 045What happens to EPS if a company issues debt to buy back shares?Credit modellingIntermediatetechnicalDeutsche BankInvestment Banking · San Francisco · 2025

   Say this

   EPS rises if the after-tax cost of debt is below the inverse of the P/E — that is, below the earnings yield. Numerator falls by the after-tax interest, denominator falls by the shares retired, and whichever falls proportionally more decides the sign.

   Then walk it

   1. The test: after-tax cost of debt versus earnings yield. Borrow at 6 percent pre-tax, 4.5 percent after tax at a 25 percent rate. If the stock trades at 15 times, its earnings yield is 6.7 percent. 4.5 below 6.7, so EPS is accretive.
   2. Numbers: 1,000 of buyback at a 20 dollar share price retires 50 shares. Interest cost 60 pre-tax, 45 after tax. If net income was 500 on 500 shares, EPS goes from 1.00 to 455 over 450, which is 1.011. Accretive by about 1 percent.
   3. Flip the multiple to 30 times and the earnings yield is 3.3 percent, below the 4.5 percent after-tax cost. Now it is dilutive, even though the share count fell.
   4. But accretion is not value. The buyback earns you the company's own earnings yield, so at 30 times you are approving a 3.3 percent return project funded with 4.5 percent money. EPS accretion and value creation can point in opposite directions, and this is precisely where they do.
   5. As a credit analyst the answer is different again and worth saying: leverage rises, interest coverage falls, and equity cushion is removed. A debt-funded buyback is a transfer of value from lenders to shareholders, which is why bond documents restrict them through restricted payment baskets.
   6. One more mechanical point: if the buyback happens mid-year, use weighted average shares, not the ending count. Interviewers ask this as the follow-up.

   Where candidates lose it

   Answering 'EPS goes up because shares fall' with no test. The whole question is the comparison of after-tax cost of debt against earnings yield. In a debt interview, add the credit view — coverage falls and the lender pays for the shareholder's accretion.

   Expect next

   • At what P/E does it turn dilutive?
   • Is it value-creating even if it is accretive?
   • How do bond covenants restrict this?

   Reported by candidates at Deutsche Bank (Investment Banking, San Francisco, 2025). Source: Wall Street Oasis.

Firm tags come from public, anonymous candidate reports on Wall Street Oasis: strong signal, not sworn testimony. Firms are named as the places a question was reported, not as partners of Fin Maverick. Answers are written for this page to show how to think out loud; they are not scripts to recite.