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. 036How does operating leverage affect debt versus equity holders?Credit analysis and ratingsHardsuperdayOaktree Capital ManagementCredit · Los Angeles · 2024

   Say this

   Operating leverage amplifies the volatility of EBIT, and because equity is the residual claim, equity holders get the amplified upside and downside while debt holders get amplified downside with no upside. So high operating leverage is straightforwardly bad for a lender and a mixed blessing for a shareholder.

   Then walk it

   1. Mechanism: a high fixed-cost base means a small revenue change produces a large EBIT change. A business with 70 percent fixed costs loses about 2.3 times as much EBIT percentage-wise as its revenue decline.
   2. Take an airline, a steel mill or a semiconductor fab. Revenue down 20 percent can take EBIT down 60 or 70 percent and straight through interest coverage. Same 20 percent decline at a staffing agency, where costs are variable, barely moves EBIT.
   3. For the lender, that translates into a much fatter left tail on coverage and leverage. So you lend less, at a higher spread, with tighter covenants, and you underwrite to a trough EBITDA rather than a mid-cycle one.
   4. For the equity holder it cuts both ways, and in a recovery it is spectacular: the same amplification means EBIT triples off a trough. That is why cyclical equities rally hardest early in a cycle.
   5. The critical interaction is with financial leverage. Operating leverage and financial leverage multiply. A high fixed-cost business at 5 turns of debt is a fundamentally different credit from a subscription business at 5 turns, which is exactly why software gets levered higher than shipbuilding at the same rating.
   6. So the practical rule for a credit investor: set your maximum leverage inversely to operating leverage. And the number to watch is not leverage at all but EBITDA volatility through the last two downturns.

   Where candidates lose it

   Explaining operating leverage correctly and never connecting it to the lending decision. The point the interviewer is testing is that operating and financial leverage compound, so the maximum debt a business can carry depends on its cost structure. Say that out loud.

   Expect next

   • So how much debt would you lend to an airline versus a software company?
   • How do you estimate trough EBITDA?
   • Does high operating leverage ever help a lender?

   Reported by candidates at Oaktree Capital Management (Credit, Los Angeles, 2024). Source: Wall Street Oasis.

2. 042How does depreciation flow through the financial statements?Credit modellingCorephone / first roundOaktree Capital ManagementDebt Capital Markets · New York · 2026

   Say this

   Take 100 of depreciation at a 25 percent tax rate. Pre-tax income falls 100, tax falls 25, so net income falls 75. Cash actually rises 25, because depreciation is non-cash and the only real effect is the tax you no longer pay.

   Then walk it

   1. Income statement: 100 of depreciation reduces EBIT by 100, so pre-tax income is down 100 and net income is down 75.
   2. Cash flow statement: start from net income at minus 75, add back the 100 of non-cash depreciation, so cash from operations is up 25.
   3. Balance sheet: cash up 25, net PP&E down 100, so assets down 75. Retained earnings down 75. It balances.
   4. The point is the depreciation tax shield. A non-cash charge of 100 generated 25 of real cash, which is why capital-intensive businesses have effective tax rates below the statutory one.
   5. For a credit analyst there is a second point: EBITDA adds depreciation straight back, so it is unaffected. Which is exactly why EBITDA flatters capital-intensive borrowers — the asset is still wearing out and will need replacing with real cash capex.
   6. So when I see high depreciation I immediately compare it to capex. Capex persistently below depreciation means the business is under-investing and the cash flow is borrowed from the future.

   Where candidates lose it

   Saying cash falls. It does not — depreciation is non-cash and the only cash effect is the tax saving. In a credit interview, also make the EBITDA point: adding D&A back is why EBITDA overstates the cash a capital-intensive borrower really has.

   Expect next

   • Now do 100 of capex instead.
   • What if the company has no taxable income?
   • Why is EBITDA a poor proxy for cash flow in a capital-intensive business?

   Reported by candidates at Oaktree Capital Management (Debt Capital Markets, 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.