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. 076What is the difference between an incurrence covenant and a maintenance covenant?Covenants and documentationIntermediatephone / first roundLeveraged financePrivate credit

   Say this

   A maintenance covenant is tested every quarter whether or not the borrower does anything — miss it and you are in default. An incurrence covenant is only tested when the borrower takes an action, like raising debt or paying a dividend. Fail an incurrence test and you simply cannot do the thing; you are not in breach.

   Then walk it

   1. Maintenance: net leverage below 5 times, tested each quarter on the compliance certificate. A bad quarter alone puts you in default, which gives lenders the right to accelerate or, more usefully, to demand a repricing, more security or an equity cure.
   2. Incurrence: you may incur additional debt only if pro forma leverage is below 4 times. If it is 4.2, you cannot issue. Nothing has gone wrong; a door is just shut.
   3. Who gets which: bank term loan As and revolvers carry maintenance tests, because banks want the early seat at the table. High yield bonds are incurrence-only, always have been, because a dispersed bondholder base cannot manage a workout. Term Loan Bs used to have maintenance tests and now mostly do not.
   4. The commercial consequence is timing of information and control. A maintenance covenant surfaces stress two or three quarters earlier, when there is still enterprise value to negotiate over. Incurrence-only means lenders often find out when the borrower runs out of cash.
   5. Which is why recoveries have been weakening. Later detection means more value has already leaked, and recent first lien recoveries have come in materially below the historic 70 percent average.
   6. Two related features to name: an equity cure, letting the sponsor inject cash to fix a maintenance breach, usually limited in number and amount; and a springing covenant, which converts a revolver into a maintenance-tested facility only when drawings exceed a threshold.

   Where candidates lose it

   Saying incurrence covenants are 'weaker' without explaining the mechanism. The point is not strength, it is timing — maintenance tests give early warning and negotiating leverage, incurrence tests only block actions. Link it to recovery rates and the answer lands.

   Expect next

   • What is an equity cure?
   • Why do recoveries fall when maintenance covenants disappear?
   • Which would you insist on as a private credit lender?
2. 078Explain call protection — non-call periods, the call schedule and a make-whole.Covenants and documentationIntermediatetechnicalLeveraged financeFixed income asset management

   Say this

   Call protection is what stops an issuer refinancing away a bond the moment it gets cheaper. High yield uses a hard non-call period then a declining premium schedule; investment grade uses a make-whole, which requires the issuer to pay the present value of all remaining cash flows, so calling is almost never economic.

   Then walk it

   1. High yield structure on a typical 7-year deal: non-call 3, then callable at 103 in year 4, 101.5 in year 5, and par thereafter. The premium usually starts at half the coupon and steps down. NC2 or NC1 on a 5-year is common for stronger credits.
   2. Alongside it, an equity clawback letting the issuer redeem up to 35 or 40 percent at par plus the coupon out of IPO proceeds, and a 10 percent per year at 103 carve-out on many recent deals. Those carve-outs erode the protection and are worth reading for.
   3. Make-whole: the redemption price is the present value of all remaining coupons and principal discounted at the relevant Treasury yield plus a small spread, usually 25 to 50 basis points. Because the discount rate is below the bond's own yield, the make-whole price is above market, so the option is out of the money by construction.
   4. Which is why investment grade issuers almost never call. They tender instead, which is a market transaction at a negotiated price rather than exercising a contractual right.
   5. Loans are the opposite extreme: prepayable at par, with at most a 101 soft call for six to twelve months, which only applies to a repricing refinancing. That prepayability is a big part of why sponsors like loans.
   6. The investor consequence to state: call protection is what you are paid for in the spread. A bond with weak call protection and generous carve-outs should trade wider than one without, and a portfolio manager who does not price the call schedule is giving away option value.

   Where candidates lose it

   Describing a make-whole as just 'a penalty'. It is a present value calculation designed to make the call uneconomic, and saying why — the discount rate is below the bond's yield — is the technical point. Also do not forget that loans have essentially no call protection, because that contrast is the commercial insight.

   Expect next

   • Why is a make-whole call almost never exercised?
   • What is an equity clawback?
   • How would you value the call option in a high yield bond?

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.