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. 022If CUSMA negotiations fall through this summer, what is the impact to the Bank of Canada?Yield curve and ratesHardtechnicalTD SecuritiesDebt Capital Markets · Toronto · 2026

   Say this

   It pulls the Bank in two directions at once, which is the whole point of the question. A trade breakdown is a large negative demand shock to Canadian growth, which argues for cuts, but tariffs and a weaker Canadian dollar push import prices up, which argues against. The Bank would likely cut and lean on the growth side, while flagging the inflation risk.

   Then walk it

   1. The growth channel is direct and large. Roughly three quarters of Canadian goods exports go to the United States, so tariffs or loss of preferential access hits manufacturing, autos and energy hard, and business investment freezes on the uncertainty alone.
   2. The inflation channel runs the other way. Tariffs raise input costs, and the loonie weakens on a worse terms-of-trade outlook, which raises the price of imported goods in Canadian dollars. That is a supply shock.
   3. A central bank facing a supply shock has to judge whether the price rise is a one-off level effect or feeds into expectations. If expectations stay anchored, you look through it and support demand. That is the Bank's stated approach.
   4. So the likely read: cuts, possibly faster than the market currently prices, with the communication emphasising that the inflation impulse is transitory and the output gap is opening.
   5. The complication is the exchange rate and the policy gap with the Fed. Cutting well below US rates weakens the loonie further, which imports more inflation. That constrains how far the Bank can go unilaterally.
   6. For a Toronto DCM desk the practical consequence: the Canadian curve steepens as the front end rallies on cuts, provincial and corporate spreads widen on the growth shock, and the new issue window for anything trade-exposed shuts.

   Where candidates lose it

   Answering with one direction only. The interviewer picked this because it is a growth-versus-inflation conflict, and the mark is for identifying the trade-off and then taking a view with a reason. Also, do not guess at treaty detail you do not know — reason from trade share and the two channels.

   Expect next

   • Which channel dominates, and why?
   • What does that do to the Canadian curve?
   • How does the policy gap with the Fed constrain them?

   Reported by candidates at TD Securities (Debt Capital Markets, Toronto, 2026). Source: Wall Street Oasis.

2. 027Can debt ever be more expensive than equity, and in what scenario?Credit spreadsHardsuperdayTD SecuritiesCapital Markets · New York · 2025

   Say this

   Yes, and it happens regularly in distress. When a borrower is close to default, rescue debt can price at 15 to 20 percent cash plus fees, warrants and PIK, while the equity stub is an out-of-the-money option that costs the sponsor nothing in cash. At that point issuing equity is cheaper than borrowing.

   Then walk it

   1. The normal ordering holds for two reasons: debt is senior so it takes less risk, and interest is tax-deductible so the after-tax cost is lower. Both can break.
   2. The tax shield disappears first. A company with no taxable income gets no deduction, so the after-tax cost of debt equals the pre-tax cost. Interest limitation rules, like the 30 percent of EBITDA cap in the US, do the same thing at high leverage.
   3. Then the risk ordering flips in effect. In distress, existing bonds trade at 20 or 30 percent yields and new money demands super-priority, a 15 percent coupon, 3 points of fees and warrants. All-in that can be 25 percent.
   4. Meanwhile the equity has convexity. A sponsor putting fresh equity into a levered business is buying a long-dated option on recovery, and the required return on that, in the sponsor's own hands, can be lower than the rescue lender's price.
   5. Concrete cases: 2020 pandemic rescue financings and several 2023 to 2024 liability management exercises priced new money at levels no equity investor would have demanded. Sponsors chose to write equity cheques instead.
   6. There is also a mundane version: a small private company with no ratings and no assets may simply not be able to borrow at any price, which is an infinite cost of debt. Availability, not just price, is part of the cost of capital.

   Where candidates lose it

   Answering flatly no because debt is senior and tax-deductible. That is the textbook line and the question exists to test whether you can break it. Name the tax shield disappearing and the distress case, and give an all-in rescue-financing number.

   Expect next

   • What happens to the tax shield if there is no taxable income?
   • Why would a sponsor write an equity cheque instead?
   • How would you price rescue financing?

   Reported by candidates at TD Securities (Capital Markets, New York, 2025). 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.