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. 040The company has filed. What is the recovery on each claim?Credit analysis and ratingsHardcase studyHoulihan LokeyRestructuring · New York · 2026

   Say this

   Build one number and then a waterfall. Estimate the going-concern enterprise value, then allocate it strictly in priority order until it runs out. The claim where the value stops is the fulcrum security, and that is the one that converts into the equity of the reorganised company.

   Then walk it

   1. Step one, the value. Reorganisation EBITDA times a distressed-but-credible multiple, cross-checked against a DCF and any market evidence such as where the debt trades. Say your assumption out loud, because the answer is entirely driven by it.
   2. Step two, the claims, in order: DIP financing and administrative claims first, then priority and secured claims to the extent of their collateral, then unsecured, then subordinated, then preferred, then common. Note that the unsecured portion of an undersecured claim drops down to rank with general unsecured.
   3. Step three, allocate. Worked example: enterprise value 600, admin and DIP 50, first lien 400, second lien 200, unsecured notes 150. Admin takes 50, first lien takes its full 400, leaving 150 for the second lien, which recovers 75 percent and gets the equity. Unsecured notes and below get nothing.
   4. So the second lien is the fulcrum. Above it everything is money-good and cares only about getting paid; below it everything is out of the money and will litigate for option value rather than economics.
   5. And the negotiated reality. Out-of-the-money classes have blocking and litigation rights, so they usually extract a tip — a few points of equity or warrants — to avoid delay. Textbook absolute priority is the starting point, not the outcome.
   6. State your sensitivity: at a 5 times multiple instead of 6, the second lien recovers 25 percent rather than 75 and the fulcrum moves up into the first lien. That is how leveraged the answer is to one assumption.

   Where candidates lose it

   Going straight to the waterfall without first stating an enterprise value and the multiple behind it. The waterfall is arithmetic; the value is the judgement. And forgetting that an undersecured claim splits, with the deficiency ranking as unsecured, is the most common technical error here.

   Expect next

   • Where does the fulcrum move if the multiple is 5 times?
   • How would you value the consideration if it is new equity?
   • Why do out-of-the-money classes get anything at all?

   Reported by candidates at Houlihan Lokey (Restructuring, New York, 2026). Source: Wall Street Oasis.

2. 043Walk me through a DCF, and tell me how tax and depreciation flow through it.Credit modellingIntermediatetechnicalHoulihan LokeyDebt Capital Markets · Los Angeles · 2025

   Say this

   Project unlevered free cash flow for five to ten years, discount at WACC, add a terminal value, and that gives you enterprise value. Depreciation enters twice — once as a tax deduction and once added back as non-cash — so its net contribution is purely the tax shield.

   Then walk it

   1. Build: EBIT, taxed at the marginal rate, plus D&A, less capex, less the change in working capital. Discount each year at WACC using mid-year convention if you want to be careful.
   2. Terminal value two ways: Gordon growth on the final year's cash flow, or an exit multiple on terminal EBITDA. Cross-check them against each other, because a growth rate above nominal GDP or an exit multiple above the entry multiple both need justifying.
   3. Tax: you tax EBIT, not pre-tax income, because the DCF is unlevered. The interest deduction's value is handled either in the WACC through the after-tax cost of debt, or separately as a tax shield in an APV build. Doing both double-counts.
   4. Depreciation: subtract it to get the deduction, add it back because no cash left. The genuine effect is 100 of depreciation times the tax rate of cash saved. In the terminal year, depreciation and capex should converge, otherwise the asset base grows or shrinks forever.
   5. Bridge to equity: enterprise value less net debt, less minorities and preferred, plus associates, divided by diluted shares.
   6. For a restructuring or credit use, the DCF is not really for the equity value — it is for the enterprise value that drives the recovery waterfall. And say the limitation: with 60 to 80 percent of the value typically in the terminal, a DCF is mostly a formal way of stating an assumption.

   Where candidates lose it

   Double-counting the tax shield by using an after-tax WACC and also adding a separate tax shield. And on a debt desk, failing to say what the DCF is for: in restructuring it sets the enterprise value that decides who recovers what, not a target price.

   Expect next

   • How does the tax shield get captured?
   • Why should depreciation equal capex in the terminal year?
   • How would you use this in a recovery analysis?

   Reported by candidates at Houlihan Lokey (Debt Capital Markets, Los Angeles, 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.