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.

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.