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. 051How does a company decide between raising debt and raising equity?Primary issuanceCoretechnicalScotiabankCorporate Banking · London · 2026

   Say this

   Debt is cheaper and non-dilutive, so the default is debt until the capacity runs out. The real constraints are the rating and the covenant headroom, the volatility of the cash flows, and whether management thinks the equity is cheap or expensive.

   Then walk it

   1. The cost argument: debt is senior so it demands a lower return, and interest is tax-deductible so the after-tax cost falls further. Equity has no tax shield and sits at the bottom, so it is always dearer on a required-return basis.
   2. The constraint is capacity, not cost. Every extra turn of leverage raises the probability of distress, and at some point the rating agency downgrades, the spread jumps, the covenant binds, and the flexibility to fund the next opportunity disappears. Financial policy is usually expressed as a target leverage or a target rating for exactly this reason.
   3. Cash flow character decides how much capacity there is. Contracted, recurring, low-capex cash flows support 5 or 6 turns. Cyclical, high-fixed-cost businesses support 2 or 3. That is the real answer to 'how much debt'.
   4. Then the market-timing and signalling layer. Issuing equity signals management thinks the stock is fully valued, which is why equity raises are usually met with a price fall. Pecking order theory formalises this: internal cash first, then debt, then equity last.
   5. Use of proceeds matters. Funding a contracted asset with a 20-year life argues for long-dated debt matched to it. Funding an uncertain growth push or an R&D pipeline argues for equity, because you cannot service fixed obligations with uncertain cash flows.
   6. And there is a middle: converts, hybrids, preferred and PIK. A convertible raises cheap coupon money by selling equity upside; a hybrid gets partial equity credit from the agencies. Naming that middle ground is what a corporate banking interviewer is listening for.

   Where candidates lose it

   Answering 'debt is cheaper' and stopping. Everyone says that. The differentiating content is the capacity constraint — rating, covenants and cash flow volatility — and the hybrid middle ground. Also, do not forget that the answer changes entirely when the market is shut.

   Expect next

   • How much debt can that business actually carry?
   • Why does the share price usually fall on an equity raise?
   • What is a hybrid and why does the agency give it equity credit?

   Reported by candidates at Scotiabank (Corporate Banking, London, 2026). Source: Wall Street Oasis.

2. 059Walk me through the syndication process.Syndication and loansIntermediatetechnicalScotiabankDebt Capital Markets · New York · 2026

   Say this

   A lead arranger commits to the whole facility, then sells it down to other lenders. Four phases: commitment and structuring, a limited pre-marketing or senior syndication to anchor lenders, general syndication with a bank meeting and an information memorandum, then allocation and close. Flex language is what lets the arranger reprice if demand is short.

   Then walk it

   1. Phase one: the arranger agrees the structure and signs a commitment letter with a term sheet and a fee letter. On an acquisition financing this is underwritten, so the arranger is on the hook for the full amount before a single other lender has seen it.
   2. Phase two, senior or sub-underwriting: the arranger quietly lines up two or three other banks or anchor institutional investors to take large tickets. Getting 60 or 70 percent of the deal spoken for before it goes public is what de-risks the launch.
   3. Phase three, general syndication: launch with a bank meeting or a lender call, distribute the confidential information memorandum, publish ratings, and set a commitment deadline usually two to three weeks out. Lenders do their credit work and submit commitments at the offered pricing.
   4. Then price discovery. If the book is oversubscribed you flex pricing tighter or loosen a term. If it is short you flex wider, add an original issue discount, tighten a covenant or shorten the maturity. Flex is pre-agreed in the fee letter and is the arranger's protection.
   5. Phase four: allocate, document the credit agreement, satisfy conditions precedent, and close and fund. Institutional tranche lenders then trade the loan in the secondary market, with assignments needing borrower and agent consent within limits set in the document.
   6. Two roles worth naming because juniors get asked: the arranger structures and sells, the administrative agent runs the facility afterwards — payments, compliance certificates, amendments and voting. They are often but not always the same bank.

   Where candidates lose it

   Describing it as a bond deal. A loan syndication runs over weeks with a credit agreement negotiated in parallel, not hours. And if you do not mention flex, you have left out the single mechanism that makes underwriting a loan commercially possible.

   Expect next

   • What is flex, and what can the arranger actually change?
   • What happens if the deal is undersubscribed even after flex?
   • What is the difference between the arranger and the agent?

   Reported by candidates at Scotiabank (Debt Capital Markets, New York, 2026). Source: Wall Street Oasis.

3. 060Tell me about the two different types of loans in the broadly syndicated loan market.Syndication and loansIntermediatetechnicalScotiabankDebt Capital Markets · New York · 2026

   Say this

   The pro rata tranches and the institutional tranche. Pro rata means the revolver and the amortising Term Loan A, which banks hold; institutional means the Term Loan B, which is bought by CLOs, loan funds and separate accounts. They are sold to completely different buyers and structured accordingly.

   Then walk it

   1. Pro rata: the revolving credit facility and the Term Loan A, syndicated together because banks want the ancillary business — cash management, FX, hedging — and the revolver alone is unprofitable. They are called pro rata because lenders take the same percentage of both.
   2. Term Loan A characteristics: 5 years, amortising, say 5 to 10 percent a year, cheaper margin, and it carries maintenance covenants because banks want the early warning and the seat at the table.
   3. Institutional: the Term Loan B. Longer, typically 7 years, nominal 1 percent annual amortisation with a bullet at the end, wider margin, and usually covenant-lite. Sold to CLOs, mutual funds, ETFs and separate accounts who want yield and do not want to police covenants.
   4. Why the structural differences follow from the buyer. A CLO has a fixed reinvestment period and wants long-dated floating paper with minimal amortisation. A bank wants amortisation, a short tenor and covenants because it is managing a relationship and a regulatory capital charge.
   5. Pricing: the TLB usually pays 50 to 150 basis points more than the TLA for the same credit, reflecting the longer tenor, weaker covenants and the fact the buyer has no ancillary revenue to subsidise it.
   6. The market consequence worth naming: because CLOs are the dominant TLB buyer, CLO formation capacity effectively sets how much leveraged loan supply the market can absorb. When CLO issuance stalls, TLB spreads widen regardless of credit fundamentals.

   Where candidates lose it

   Naming TLA and TLB without explaining that the structure follows the buyer. The whole point is that banks want amortisation and covenants while CLOs want long floating paper, and that is why one tranche is covenant-lite and the other is not.

   Expect next

   • Why is the TLB covenant-lite and the TLA not?
   • What is a 101 soft call?
   • What happens to the TLB market when CLO issuance stops?

   Reported by candidates at Scotiabank (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.