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. 046Does PIK financing increase or decrease enterprise value?Credit modellingHardtechnicalMoelis & CompanyInvestment Banking · Los Angeles · 2026

   Say this

   Neither, directly. Enterprise value comes from operating cash flows and financing does not change them. What PIK changes is the bridge: the interest accrues onto the principal, so net debt grows every year and, at a constant enterprise value, equity value shrinks.

   Then walk it

   1. PIK means pay in kind — the interest is not paid in cash, it capitalises. A 12 percent PIK on 100 becomes 112 after a year and 125 after two, so the debt claim compounds.
   2. EBITDA and unlevered cash flow are untouched, so enterprise value in theory is untouched. Financing does not create operating value.
   3. The bridge is what moves. Equity value equals enterprise value less net debt, and net debt is rising by the accrual every year. The equity is being eaten from below even if the business performs exactly to plan.
   4. Real second-order effects that can move enterprise value: preserving cash today can fund growth capex or an acquisition that genuinely raises future EBITDA, which supports value. And PIK accrual may not be currently cash-tax deductible in the same way as cash interest, which weakens the tax shield.
   5. Why it exists: it gives a borrower who cannot service cash interest room to grow into the structure, and it gives the lender a high headline return. Private credit funds have used PIK heavily since 2022 precisely because floating rate cash coupons became unaffordable for borrowers underwritten at 2021 rates.
   6. The thing to say unprompted: rising PIK share in a private credit portfolio is a warning indicator, because it means income is being accrued rather than collected. That is a real supervisory concern, not a technicality.

   Where candidates lose it

   Saying enterprise value falls because debt rose. Debt is not part of enterprise value — it is part of the bridge to equity. Confusing the two is exactly the error the question is built to expose.

   Expect next

   • So what happens to the equity over a five-year hold?
   • When would a lender insist on PIK rather than cash pay?
   • Why is rising PIK a warning sign in private credit?

   Reported by candidates at Moelis & Company (Investment Banking, Los Angeles, 2026). Source: Wall Street Oasis.

2. 047How much would you pay for 2x your money on a 12 percent PIK security with no compounding?Credit modellingHardsuperdayApollo Global ManagementGeneralist · New York · 2019

   Say this

   You need the holding period. With simple 12 percent accrual, the instrument is worth 100 plus 12 per year, so it reaches 200 at a bit over 8.3 years. If you want 2x in five years, the accrued value is only 160, so you must buy at 80.

   Then walk it

   1. Simple accrual means the balance is 100 plus 12 times the number of years. No compounding, so it is linear, not exponential.
   2. For 2x with no discount, solve 100 plus 12t equals 200. That gives t equals 8.33 years. So if you pay par and hold to maturity, you double in a shade over eight years.
   3. If the hold is fixed, you solve for price instead. Five-year hold: terminal value is 160, and you want 2x, so entry price is 80. Three-year hold: terminal value 136, entry price 68.
   4. Sanity-check the implied return, because that is what the interviewer wants. 2x over five years is a 14.9 percent IRR; over three years it is 26 percent. State which one you are quoting.
   5. Now the real-world qualifications, which is where the marks are. PIK usually compounds, and at 12 percent compounding you double in 6.1 years by the rule of 72, not 8.3. So confirm the accrual convention before you answer.
   6. And the credit qualification: doubling requires the borrower to repay a balance that has grown 60 to 100 percent while never paying you cash. So the recovery question is whether enterprise value grows faster than the accrual. If it does not, the accrued claim is above the value and your recovery is capped well below the accreted number.

   Where candidates lose it

   Assuming compounding when the question explicitly says none — that turns 8.3 years into 6.1 and you have answered a different question. And answering without asking for the holding period, since price and horizon are two unknowns in one equation.

   Expect next

   • Now assume it compounds. How does the answer change?
   • What IRR is 2x over five years?
   • What has to be true about enterprise value for you to get repaid?

   Reported by candidates at Apollo Global Management (Generalist, New York, 2019). Source: Wall Street Oasis.

3. 048Value this construction company and tell me whether they are worth lending to.Credit modellingHardcase studyBain CapitalCredit · New York · 2024

   Say this

   Construction is one of the hardest credits there is, so I would lead with that. Value it on a low mid-single-digit EBITDA multiple, discount the earnings heavily for contract risk, and lend only against a secured, amortising structure with tight liquidity covenants — or not at all if the contracts are fixed-price and the backlog is concentrated.

   Then walk it

   1. Valuation first: EBITDA times a multiple, and construction trades cheap — typically 4 to 6 times for a contractor, versus 10-plus for business services, because earnings are project-based, low-margin and non-recurring. Cross-check against net asset value, since plant and equipment have real resale markets.
   2. The critical adjustment is that reported EBITDA is an accounting output, not cash. Percentage-of-completion accounting lets a contractor recognise profit on estimates of cost to complete. So I would look at cumulative cash flow versus cumulative reported EBITDA over five years. A persistent gap is the single biggest red flag in the sector.
   3. Then the specific risks: fixed-price contracts with input cost inflation, which is what killed Carillion; claims and variation disputes that sit as receivables for years; performance bonds and surety capacity, which is a hard constraint on growth; joint and several liability in joint ventures; and single-project concentration.
   4. Working capital is brutal and cyclical. Retentions, milestone billing and advance payments mean the balance sheet can show net cash at the peak of a billing cycle and a hole three months later. So I would look at average rather than period-end net debt.
   5. The lending decision: yes, but structured. First lien on receivables and equipment, an amortising term loan rather than a bullet, a minimum liquidity covenant rather than just leverage, monthly reporting on contract-level margins, and a hard cap on new fixed-price work. Leverage no more than 2 to 2.5 times against a business I would lend 4 to 5 times if it were subscription revenue.
   6. And I would say what would make me decline: backlog concentrated in one or two fixed-price contracts, a reported-versus-cash EBITDA gap, or a surety provider pulling capacity. Any of those and the answer is no at any price.

   Where candidates lose it

   Applying a generic EBITDA multiple and a generic leverage test. This sector's whole point is that reported profit is an estimate and the working capital cycle is deceptive. If you do not mention percentage-of-completion accounting or average versus period-end net debt, you have missed why they chose construction.

   Expect next

   • How would you test the cost-to-complete estimates?
   • What leverage would you actually lend at?
   • What single disclosure would make you walk away?

   Reported by candidates at Bain Capital (Credit, New York, 2024). 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.