Debt Capital Markets interview preparation

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100

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September 2026

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

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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.

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.