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. 074Walk me through a basic asset-backed security. What makes securitisation work at all?Structured creditIntermediatetechnicalStructured creditRating agencies

   Say this

   An originator sells a pool of receivables to a bankruptcy-remote SPV, which issues notes backed only by those cash flows. It works because of three things: the true sale isolates the assets from the originator's credit, the law of large numbers makes a granular pool's losses predictable, and subordination concentrates those losses in the junior tranches.

   Then walk it

   1. The asset classes: auto loans and leases, credit card receivables, equipment leases, consumer and student loans, trade receivables, and in India commercial vehicle and microfinance pools. The common requirement is a large number of small, homogeneous, predictable payments.
   2. True sale and bankruptcy remoteness are the legal foundation. If the transfer can be recharacterised as a secured loan, or the SPV consolidated back onto the originator, the whole point collapses. That is why the legal opinions matter more here than anywhere else in debt markets.
   3. Credit enhancement comes in layers, and you should name them in order: excess spread, which is the pool yield above the note coupon and fees; overcollateralisation, where the pool exceeds the notes; a cash reserve fund; and subordination of the junior tranches. Most losses are absorbed by excess spread before any tranche is touched.
   4. Why the originator bothers: cheaper funding than its own unsecured debt because the notes can be rated above the originator, balance sheet relief, and diversified funding. A non-investment-grade lender can fund AAA paper against prime collateral, which is the core economics.
   5. A number to anchor: a prime US auto ABS pool with roughly 1 to 2 percent expected cumulative net loss can support a AAA tranche with 8 to 12 percent hard credit enhancement, so multiple times coverage of expected loss. That multiple, not the absolute loss rate, is the rating.
   6. The risks to say unprompted: servicer disruption, because collections depend on the originator continuing to operate; adverse selection in the pool the originator chose to sell; prepayment and extension risk; and correlation again, since a macro shock hits every borrower in the pool at once.

   Where candidates lose it

   Skipping the legal layer. The true sale and bankruptcy remoteness are what make the AAA possible, and candidates who only describe tranching miss it. Also name the credit enhancement in order — excess spread first, subordination last — because that ordering is how losses actually flow.

   Expect next

   • Why can the notes be rated above the originator?
   • What is an early amortisation trigger?
   • What happens if the servicer fails?

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