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.

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.