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. 071What section of the indenture deals with payment waterfalls?Structured creditHardtechnicalNomuraStructured Products · New York · 2026

   Say this

   In a US CLO indenture it is the Priority of Payments, which sits in the article on application of monies — conventionally Section 11.1, with the interest and principal waterfalls set out as separate subsections. Numbering varies by counsel and form, so the honest answer is to name the defined term and the article rather than insist on a number.

   Then walk it

   1. The defined term is what matters: Priority of Payments. That is what you cite in a credit memo, and it is what the trustee applies on each payment date.
   2. It normally sits in Article XI, headed something like Application of Monies, with Section 11.1 giving the disbursements from the payment account and separate clauses for interest proceeds and principal proceeds.
   3. The provisions you read alongside it: Article XII or the equivalent for the collateral quality tests and coverage tests, the Sale of Collateral Obligations provisions, and the definitions section, which is where Interest Proceeds, Principal Proceeds and Adjusted Collateral Principal Amount are defined. The definitions do more work than the waterfall itself.
   4. For corporate high yield indentures the structure is different — priority comes from the intercreditor agreement and the security documents rather than from a waterfall section in the indenture, and that distinction is worth drawing if the interviewer means a corporate deal.
   5. The practical version of this answer, which is what a structured products desk actually wants: you find it by going to the definitions for Interest Proceeds, then following the cross-references. Nobody navigates a 400-page indenture by remembering section numbers.
   6. And the honest caveat that plays well: forms differ between managers and law firms, and a 2016 vintage and a 2025 vintage from the same manager can be numbered differently. So I would name the term, not a number, and check the specific document.

   Where candidates lose it

   Confidently asserting a section number for all indentures. Forms vary, and someone on a structured products desk will know that. Naming the defined term Priority of Payments, placing it in the application-of-monies article, and saying you would check the specific document is the credible answer.

   Expect next

   • Where would you find the coverage tests?
   • How does priority work in a corporate high yield deal instead?
   • Which definitions would you read first?

   Reported by candidates at Nomura (Structured Products, New York, 2026). Source: Wall Street Oasis.

2. 072What are the different types of accounts in a CLO new issue settlement?Structured creditHardsuperdayNomuraStructured Products · New York · 2026

   Say this

   The trustee holds a set of segregated accounts, each with a defined purpose in the waterfall. The main ones are the payment account, the collection account split into interest and principal, the ramp-up or unused proceeds account, the revolver or delayed-draw reserve account, the expense reserve account, the interest reserve account, and the custodial account holding the collateral.

   Then walk it

   1. Collection account: where all cash from the loan portfolio lands, kept in two sub-ledgers, interest proceeds and principal proceeds, because the waterfall treats them differently. Misclassifying a payment between the two directly changes what equity receives.
   2. Payment account: the trustee moves money here shortly before a payment date and disburses it strictly per the Priority of Payments.
   3. Ramp-up or unused proceeds account: at closing the CLO has raised cash but has not yet bought all the loans. Undeployed note proceeds sit here during the ramp-up period, usually three to six months, until the portfolio reaches target par.
   4. Expense reserve account: funded at closing to pay the upfront legal, rating and structuring costs, plus ongoing administrative expenses, so that fees do not eat into the first payment date's interest proceeds.
   5. Interest reserve account: funded at closing on many deals to cover the first payment date's note interest, because the portfolio has not yet generated a full period of income during ramp-up.
   6. Revolver funding or delayed-draw reserve account: if the CLO holds revolving or delayed-draw loans, it must hold cash to meet future funding obligations, so that cash is segregated and unavailable to the waterfall.

   Where candidates lose it

   This is a genuine operational-detail question and you either know it or you do not. If you do not, do not bluff a list — name the collection account, the payment account and the ramp-up account, explain why segregation matters for the waterfall, and say you would confirm the full set from the indenture.

   Expect next

   • Why is interest kept separate from principal proceeds?
   • What is the ramp-up period?
   • Why does a CLO need an interest reserve at closing?

   Reported by candidates at Nomura (Structured Products, New York, 2026). Source: Wall Street Oasis.

3. 073How do you view the long-term headwinds to broadly syndicated loan CLOs?Structured creditHardsuperdayNomuraStructured Products · New York · 2026

   Say this

   Three structural headwinds rather than cyclical ones: private credit is taking the loans that used to become CLO collateral, documentation has weakened so recoveries are likely to be worse than history suggests, and the AAA buyer base is narrow and concentrated. The arbitrage itself is also thinner than it was.

   Then walk it

   1. Collateral supply is the biggest one. Direct lending has absorbed a large share of new sponsor financings, particularly in the middle market, so net new BSL supply has been weak and CLO managers compete for the same loans. That compresses the asset spread and drives repricings.
   2. Documentation erosion: covenant-lite is now universal, EBITDA add-backs are aggressive, and unrestricted subsidiary and asset-transfer capacity is wide. The consequence is later detection of stress and worse recoveries — first lien recoveries in recent workouts have come in well below the historic 70 percent average, some in the 40s and 50s.
   3. Liability side concentration: the AAA tranche is bought by a small set of large buyers, historically Japanese banks, US insurers and money managers. A regulatory or appetite change at a handful of institutions moves AAA spreads and therefore CLO formation directly. That is a fragile funding base for a trillion-dollar market.
   4. Arbitrage compression: when the loan pool yields SOFR plus 350 and AAAs cost SOFR plus 130 to 150, equity returns work. Squeeze the asset side and widen the liability side simultaneously and new issue equity stops clearing, so formation stalls even with no credit losses.
   5. What is genuinely resilient, and worth saying so you are not one-sided: CLO structural protections have worked through two crises with no AAA principal losses, the liabilities are term-matched and non-mark-to-market, so there are no forced sellers, and the diversion triggers do their job.
   6. So my view: the structure is sound and the collateral quality and the arbitrage are the pressure points. I would watch the reported versus covenant EBITDA gap and first lien recovery rates as the leading indicators, not default rates.

   Where candidates lose it

   Answering with cyclical commentary about default rates. The question says long-term headwinds, so the marks are for structural points — private credit competition, documentation erosion feeding into recoveries, and AAA buyer concentration. Also, give the other side, because a one-sided bear case on a desk that sells these is not persuasive.

   Expect next

   • What has happened to first lien recovery rates and why?
   • Who buys the AAA, and why does that concentration matter?
   • Are private credit CLOs a threat or an extension?

   Reported by candidates at Nomura (Structured Products, 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.