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. 043Walk me through a DCF, and tell me how tax and depreciation flow through it.Credit modellingIntermediatetechnicalHoulihan LokeyDebt Capital Markets · Los Angeles · 2025

   Say this

   Project unlevered free cash flow for five to ten years, discount at WACC, add a terminal value, and that gives you enterprise value. Depreciation enters twice — once as a tax deduction and once added back as non-cash — so its net contribution is purely the tax shield.

   Then walk it

   1. Build: EBIT, taxed at the marginal rate, plus D&A, less capex, less the change in working capital. Discount each year at WACC using mid-year convention if you want to be careful.
   2. Terminal value two ways: Gordon growth on the final year's cash flow, or an exit multiple on terminal EBITDA. Cross-check them against each other, because a growth rate above nominal GDP or an exit multiple above the entry multiple both need justifying.
   3. Tax: you tax EBIT, not pre-tax income, because the DCF is unlevered. The interest deduction's value is handled either in the WACC through the after-tax cost of debt, or separately as a tax shield in an APV build. Doing both double-counts.
   4. Depreciation: subtract it to get the deduction, add it back because no cash left. The genuine effect is 100 of depreciation times the tax rate of cash saved. In the terminal year, depreciation and capex should converge, otherwise the asset base grows or shrinks forever.
   5. Bridge to equity: enterprise value less net debt, less minorities and preferred, plus associates, divided by diluted shares.
   6. For a restructuring or credit use, the DCF is not really for the equity value — it is for the enterprise value that drives the recovery waterfall. And say the limitation: with 60 to 80 percent of the value typically in the terminal, a DCF is mostly a formal way of stating an assumption.

   Where candidates lose it

   Double-counting the tax shield by using an after-tax WACC and also adding a separate tax shield. And on a debt desk, failing to say what the DCF is for: in restructuring it sets the enterprise value that decides who recovers what, not a target price.

   Expect next

   • How does the tax shield get captured?
   • Why should depreciation equal capex in the terminal year?
   • How would you use this in a recovery analysis?

   Reported by candidates at Houlihan Lokey (Debt Capital Markets, Los Angeles, 2025). Source: Wall Street Oasis.

2. 045What happens to EPS if a company issues debt to buy back shares?Credit modellingIntermediatetechnicalDeutsche BankInvestment Banking · San Francisco · 2025

   Say this

   EPS rises if the after-tax cost of debt is below the inverse of the P/E — that is, below the earnings yield. Numerator falls by the after-tax interest, denominator falls by the shares retired, and whichever falls proportionally more decides the sign.

   Then walk it

   1. The test: after-tax cost of debt versus earnings yield. Borrow at 6 percent pre-tax, 4.5 percent after tax at a 25 percent rate. If the stock trades at 15 times, its earnings yield is 6.7 percent. 4.5 below 6.7, so EPS is accretive.
   2. Numbers: 1,000 of buyback at a 20 dollar share price retires 50 shares. Interest cost 60 pre-tax, 45 after tax. If net income was 500 on 500 shares, EPS goes from 1.00 to 455 over 450, which is 1.011. Accretive by about 1 percent.
   3. Flip the multiple to 30 times and the earnings yield is 3.3 percent, below the 4.5 percent after-tax cost. Now it is dilutive, even though the share count fell.
   4. But accretion is not value. The buyback earns you the company's own earnings yield, so at 30 times you are approving a 3.3 percent return project funded with 4.5 percent money. EPS accretion and value creation can point in opposite directions, and this is precisely where they do.
   5. As a credit analyst the answer is different again and worth saying: leverage rises, interest coverage falls, and equity cushion is removed. A debt-funded buyback is a transfer of value from lenders to shareholders, which is why bond documents restrict them through restricted payment baskets.
   6. One more mechanical point: if the buyback happens mid-year, use weighted average shares, not the ending count. Interviewers ask this as the follow-up.

   Where candidates lose it

   Answering 'EPS goes up because shares fall' with no test. The whole question is the comparison of after-tax cost of debt against earnings yield. In a debt interview, add the credit view — coverage falls and the lender pays for the shareholder's accretion.

   Expect next

   • At what P/E does it turn dilutive?
   • Is it value-creating even if it is accretive?
   • How do bond covenants restrict this?

   Reported by candidates at Deutsche Bank (Investment Banking, San Francisco, 2025). Source: Wall Street Oasis.

3. 049Walk me through getting to a property's exit value from gross potential rent, using a cap rate.Credit modellingIntermediatetechnicalInvescoReal Estate · New York · 2025

   Say this

   Gross potential rent, less vacancy and credit loss to get effective gross income, plus other income, less operating expenses to get net operating income. Then divide NOI by the exit cap rate. NOI of 10 million at a 6 percent cap is a 167 million exit value.

   Then walk it

   1. Gross potential rent is every unit let at market rent with no vacancy — the theoretical maximum. Then subtract a vacancy and collection loss allowance, typically 5 to 10 percent depending on asset class and market.
   2. Add other income: parking, storage, laundry, signage, recoveries from tenants. Then subtract operating expenses — property taxes, insurance, utilities, management fee, repairs and a reserve for replacements. That gives net operating income.
   3. Critically, NOI is before debt service, before income tax, before capex and before depreciation. Putting interest into NOI is the single most common error, and it makes the cap rate meaningless.
   4. The cap rate is NOI divided by value, so value is NOI divided by the cap rate. A 6 percent cap is the same as 16.7 times NOI. It is the market's required unlevered yield, and it is set by rates, growth expectations and asset quality.
   5. Then sensitise, because this is enormously levered to the cap rate. At 10 million of NOI, a 6 percent cap gives 167 million and a 7 percent cap gives 143 million — a 14 percent value swing from 100 basis points. That is why the 2022 rate move devalued real estate so violently.
   6. For a lender, the relevant output is not value but debt yield: NOI divided by the loan amount. It sidesteps the cap rate assumption entirely, and that is why credit committees prefer it.

   Where candidates lose it

   Netting debt service or capex out of NOI. NOI is unlevered and pre-capex by definition, and mixing them in breaks the comparison to market cap rates. For a credit audience, finish on debt yield rather than value, because that is the metric that does not depend on your own cap rate assumption.

   Expect next

   • What debt yield would you require?
   • Why exit wider than you entered?
   • How much does a 100 basis point cap rate move cost you?

   Reported by candidates at Invesco (Real Estate, New York, 2025). Source: Wall Street Oasis.

4. 050Walk me through a bond issue from mandate to settlement.Primary issuanceIntermediatetechnicalSyndicate desks

   Say this

   Six stages: win the mandate, sort the ratings and documentation, announce and market, build the book, price, then allocate and settle. For a seasoned investment grade issuer the whole thing after documentation can run in a single day; for a debut high yield issuer it is six to twelve weeks.

   Then walk it

   1. Mandate: the issuer picks bookrunners, usually rewarding its relationship banks and lenders. Roles get carved up — global coordinator, active and passive bookrunners — and fees on an investment grade deal are thin, often 20 to 40 basis points, because the real payment is relationship credit.
   2. Preparation: ratings advisory and the agency process if needed, then documentation. Under a standing programme like an MTN or EMTN shelf you are updating a base prospectus; a debut issuer builds an offering memorandum from scratch, with due diligence, comfort letters and legal opinions.
   3. Announcement and marketing: announce the deal with initial price thoughts, or IPTs, then roadshow if the credit needs explaining. Investment grade repeat issuers often skip the roadshow entirely and announce in the morning for pricing the same afternoon.
   4. Book-building: investors put in orders with price limits. The syndicate watches the book grow, then revises guidance tighter, then sets the spread at launch. Orders get scaled as the price tightens, and a good book is oversubscribed several times with real, sticky accounts.
   5. Pricing: set the spread over the benchmark, fix the coupon so the bond prices at or near par, and sign. Then allocation, where the syndicate and issuer decide who gets what — long-only funds and insurers favoured over fast money.
   6. Settlement: T plus 2 or T plus 3 typically, through the clearing systems, with the issuer receiving proceeds net of fees. Then the bond starts trading in the secondary market, and the syndicate watches whether it performs, because trading below reoffer is a bad look for everyone.

   Where candidates lose it

   Describing it like an IPO with a two-week roadshow. Most investment grade bond deals are announced and priced the same day, and knowing that difference in tempo is what shows you understand the product. Also name the fee level — candidates who think bond fees resemble M&A fees give themselves away.

   Expect next

   • How does that timeline differ for a debut high yield issuer?
   • What are initial price thoughts?
   • What happens if the bond trades below reoffer?
5. 052What are the documentation workstreams on a bond deal, and what is a 144A/Reg S structure?Primary issuanceIntermediatetechnicalSyndicate desksLeveraged finance

   Say this

   Three parallel workstreams: the disclosure document, the contractual terms, and the legal and accounting comfort. 144A/Reg S is a way of selling dollar bonds without registering with the SEC — 144A to US qualified institutional buyers, Reg S to investors outside the US.

   Then walk it

   1. Disclosure: a prospectus for a registered or listed deal, or an offering memorandum for a 144A. Business description, risk factors, use of proceeds, MD&A, and audited financials. Due diligence sessions and a bring-down call sit behind it.
   2. Contract: the indenture or trust deed, which holds the covenants, events of default, the redemption and call schedule, and the payment waterfall. This is where the negotiation actually happens on a high yield deal, and a covenant package can take weeks.
   3. Comfort: auditor comfort letters on the financial data, legal opinions including a 10b-5 negative assurance letter, and officers' certificates. This is the liability protection for the banks, and it is why the timetable cannot be compressed indefinitely.
   4. 144A: sold only to qualified institutional buyers, so no SEC registration and no US GAAP reconciliation required. Faster, cheaper and with lighter ongoing disclosure. The historic trade-off was liquidity, but 144A has become the default format for high yield and for foreign issuers, and the liquidity discount has largely disappeared.
   5. Reg S: the parallel exemption for sales outside the United States. A 144A/Reg S deal has two tranches with different clearing and selling restrictions, which lets one bond reach both US institutions and international investors.
   6. The practical point for a junior: most of your documentation time is spent on the comparison of covenant packages against precedent deals. That is genuine analytical work and it is where DCM juniors add value.

   Where candidates lose it

   Confusing 144A with a private placement in the traditional sense. It is a broad institutional market with deep liquidity, not a bilateral deal. And do not skip the indenture — on a leveraged deal the covenant negotiation is the documentation, and saying 'legal handles that' is the wrong answer.

   Expect next

   • Why has 144A become the default for high yield?
   • What is a 10b-5 letter?
   • What sits in an indenture?
6. 053What actually happens on a bond roadshow, and does it still matter?Primary issuanceIntermediatetechnicalSyndicate desksLeveraged finance

   Say this

   It is a marketing process for information the credit needs explained: two to four days of group lunches and one-on-ones, plus a fixed income investor presentation and a net roadshow. It matters enormously for a debut or a complex credit and almost not at all for a seasoned investment grade issuer, which typically skips it.

   Then walk it

   1. Format: a recorded net roadshow investors can access on demand, group presentations in the main centres — New York, Boston, London — and one-on-one meetings with the largest accounts, who get management time because they write the biggest tickets.
   2. Content: the equity story reframed for lenders. Cash flow stability rather than growth, the debt structure and maturity profile, the deleveraging path, the financial policy, and the downside case. Credit investors want to know what happens if it goes wrong, and an equity deck will not answer that.
   3. The commercial purpose is price discovery and demand-building. Feedback from the meetings tells the syndicate where the book will clear, which is how initial price thoughts get set. A roadshow that generates soft feedback leads to wider IPTs or a postponed deal.
   4. It matters most for a debut issuer, a first-time high yield credit, a complex structure like a securitisation, or a credit with a story that needs correcting after bad news. It matters least for a frequent investment grade issuer with a well-known name.
   5. Which is why the market has bifurcated. A large repeat IG issuer announces at 8am and prices at 2pm with no roadshow at all. A debut single-B sponsor deal will do three days on the road plus a week of pre-marketing.
   6. The one thing candidates never mention and interviewers like: everything said on the roadshow must be in the offering document. Disclosure discipline is real, and a management team that volunteers new information on the road creates a problem for the banks.

   Where candidates lose it

   Describing an equity IPO roadshow. Credit investors ask different questions — downside, liquidity, covenants, maturity wall — and the answer should reflect that. Saying that most investment grade deals skip the roadshow entirely is what proves you know the product rather than the concept.

   Expect next

   • What do credit investors ask that equity investors do not?
   • How does feedback set the initial price thoughts?
   • When would you insist a client roadshows?
7. 054How does book-building work on a bond deal, and what does a three-times oversubscribed book tell you?Primary issuanceIntermediatetechnicalSyndicate desks

   Say this

   You announce with initial price thoughts deliberately wide, collect orders with price limits, then tighten in steps — IPTs to guidance to launch — watching how much of the book drops away at each step. Three times covered tells you demand is solid, but it matters far more who is in the book than how big it is.

   Then walk it

   1. The sequence: announce with IPTs, say Treasuries plus 180 area. Orders come in through the morning. When the book is comfortably covered, release guidance at plus 160 to 165. Then set launch at plus 155 and size the deal.
   2. The key mechanic is price-limited orders. As you tighten, orders with limits inside the new level drop out. The rate of attrition is the real information: a book that holds at 3 times through a 25 basis point tightening is genuinely strong; one that halves on the first revision is not.
   3. Quality over quantity. A book of long-only insurers, pension funds and real money accounts is worth more than one stuffed with hedge funds and dealers who will flip on day one. Syndicates track this explicitly and report the split to the issuer.
   4. Inflation is real and everyone knows it. Investors over-order expecting to be scaled, so a 3 times book might be 1.5 times of genuine demand. Syndicate desks discount known inflators, which is why relationships with accounts matter.
   5. What oversubscription buys the issuer is the right to tighten. The trade-off is explicit: tighten too far and you lose real money accounts and the bond breaks the reoffer level in secondary; leave too much on the table and the issuer paid too much.
   6. The target outcome is a bond that trades a few basis points tighter than reoffer in the first week. That means the issuer got a good price and investors got a small gain — a deal that performs. Trading 20 basis points wider means the deal was mispriced and the next one is harder.

   Where candidates lose it

   Treating book size as the measure of success. Syndicate desks care about the composition and about how the book behaves as you tighten. And the actual success test is secondary performance in the first week, not the headline cover ratio.

   Expect next

   • How do you decide when to stop tightening?
   • How do you deal with inflated orders?
   • What does it mean if the bond widens after pricing?
8. 055What is new issue premium, and how do you decide how much to pay?Primary issuanceIntermediatetechnicalSyndicate desks

   Say this

   New issue premium, or concession, is the extra spread a new bond pays over where the issuer's existing curve trades. You pay it to compensate investors for taking down size in one go, and it typically runs 5 to 15 basis points in a calm investment grade market and 25 to 50 or more in a volatile one.

   Then walk it

   1. Measure it against a fair value on the secondary curve. Interpolate the issuer's outstanding bonds to the new maturity, adjust for any curve or liquidity differences, and the gap between that level and the reoffer spread is the concession.
   2. Why it exists: an investor buying 50 million of a new bond is taking concentrated risk and giving up the option to wait. The premium is the price of immediacy and size, exactly like a block discount in equities.
   3. What widens it: market volatility, a heavy issuance calendar, a credit with a story, a first-time issuer, an unusual tenor, and a large deal size relative to the issuer's outstanding curve. What compresses it: scarcity value, index inclusion demand, and a strong technical bid.
   4. Negative concession happens and is worth mentioning. In a market starved of paper, a new bond can price inside the secondary curve — the issuer effectively gets paid for issuing. That happened repeatedly in 2020 to 2021 when central bank purchases dominated the market.
   5. The trade-off for the syndicate: too little concession and the bond breaks wider in secondary, which damages the issuer's next deal and annoys the accounts. Too much and the issuer's treasurer asks why they paid up. The right answer is a few basis points of performance.
   6. The uncomfortable politics to name: the banks' incentive is a deal that clears easily, and the issuer's is the lowest coupon. A syndicate that consistently prices 20 basis points cheap loses the mandate; one that prices too tight and breaks the deal loses the accounts. That tension is the job.

   Where candidates lose it

   Defining concession without giving a range, or without naming the possibility of negative concession. Also, saying the goal is the tightest possible spread. It is not — the goal is the tightest spread at which the bond still performs in secondary, and articulating that trade-off is the whole answer.

   Expect next

   • How would you measure fair value for a debut issuer?
   • When was concession negative and why?
   • Who wins if the deal breaks wider?
9. 057What is the difference between an underwritten deal and a best-efforts deal, and who bears the risk?Primary issuanceIntermediatetechnicalSyndicate desksLeveraged finance

   Say this

   On an underwritten deal the banks commit to provide the money whether or not investors show up, so the risk sits on their balance sheet. On a best-efforts deal they only agree to try, and if the market does not clear, the issuer does not get the funds. Underwriting costs more, and it is what a borrower buys when it needs certainty.

   Then walk it

   1. Where underwriting matters most is acquisition financing. A buyer cannot sign a purchase agreement without certain funds, so banks provide a committed bridge or an underwritten commitment letter, then syndicate it afterwards.
   2. The bank's protection is in the commitment letter: flex language that lets it change pricing, structure and terms within agreed limits to clear the market, plus a SunGard-style limited conditionality package. Flex is the safety valve that makes underwriting possible.
   3. If the market moves beyond the flex, the bank is stuck holding the paper. That is a hung deal, and it means a mark-to-market loss plus balance sheet consumption. 2007 and 2022 both produced large hung books.
   4. Best efforts is normal for investment grade bonds, where execution risk is low and the deal prices the same day. No one is underwriting a Treasury-plus-90 deal for a AA issuer; there is no risk to underwrite.
   5. Pricing follows risk. Underwriting fees on a leveraged acquisition financing can be 2 to 3 percent plus ticking fees, against 20 to 40 basis points on an investment grade bond executed best efforts. You are buying an option on market access.
   6. The limitation to state: underwritten does not mean unconditional. The conditions precedent, the material adverse change clause and the flex all give the banks outs, and negotiating those is where the real risk allocation happens.

   Where candidates lose it

   Saying underwritten means the bank guarantees the price. It does not — it guarantees the money, and flex lets it move the price against the issuer within limits. The distinction between certainty of funds and certainty of cost is the point of the question.

   Expect next

   • What is flex, and how far does it go?
   • What happens if the market moves beyond the flex?
   • Why do sponsors sometimes prefer private credit for certainty?
10. 058What is a tap issue, and why do issuers care about benchmark size and index eligibility?Primary issuanceIntermediatetechnicalSyndicate desks

    Say this

    A tap is an additional issue of an existing bond — same coupon, same maturity, same ISIN — sold at the current market price. Issuers care about benchmark size and index eligibility because both drive liquidity and the investor base, and a bond that no index will buy trades wider for the whole of its life.

    Then walk it

    1. Tap mechanics: you sell more of the existing line, so the price reflects today's yield rather than par. If the bond trades at 103 you receive 103, plus accrued, and the buyer's yield is the market yield, not the original coupon.
    2. Why tap rather than issue new: it deepens an existing line rather than fragmenting the curve into many small illiquid bonds, and it avoids a whole new documentation and pricing exercise. Sovereigns and frequent issuers tap constantly.
    3. Benchmark size is the minimum for real liquidity. In the euro market that is conventionally 500 million; in dollars, typically 300 to 500 million and often larger. Below it, the bond sits in a few portfolios, never trades, and pays a liquidity premium.
    4. Index eligibility is the larger effect. The main investment grade and high yield indices have rules on minimum size, remaining maturity, rating, currency and coupon type. Being in the index means every passive fund and ETF must own it, which is a permanent, price-insensitive bid.
    5. Concrete consequence: a sub-benchmark 200 million tranche can trade 20 to 40 basis points wider than the same issuer's index-eligible line, purely on technicals. So issuing small is not cheap.
    6. The limitation: index eligibility cuts both ways. When a bond falls out of the index — downgraded below IG, or under a year to maturity — the passive base is a forced seller, which is exactly the fallen angel mechanic.

    Where candidates lose it

    Treating this as trivia about deal size. The commercial insight is that index eligibility creates a permanent price-insensitive buyer base, so it is worth real basis points. And it works in reverse on the way out, which is why downgrades to high yield are so violent.

    Expect next

    • What are the main index inclusion rules?
    • Why does a sub-benchmark tranche trade wider?
    • What happens when a bond drops out of the index?

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.