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. 029What do rating agencies actually assess?Credit analysis and ratingsCoretechnicalRating agenciesCredit research

   Say this

   Two halves: a business risk profile and a financial risk profile, combined into an anchor rating, then adjusted by modifiers. And the thing candidates miss — a rating is an opinion on relative probability of default over a cycle, not a forecast of next year, and for most corporate scales it says nothing about recovery.

   Then walk it

   1. Business risk: industry cyclicality and competitive dynamics, the company's position within it, scale, diversification by product, customer and geography, and the operating margin's stability through a downturn.
   2. Financial risk: leverage and coverage, cash flow to debt, liquidity, the maturity profile, and above all financial policy — stated leverage targets, dividend and buyback behaviour, and appetite for debt-funded M&A.
   3. The two combine into an anchor on a published matrix, then modifiers adjust it: diversification, capital structure, liquidity, management and governance, and comparable ratings analysis, which is the agency's explicit override.
   4. Parent and government support is the other big modifier. A subsidiary can be rated above its standalone profile on expected parent support, and many bank ratings carry uplift for expected sovereign support.
   5. What it is not: not a buy or sell recommendation, not a price, not a forecast of default in a specific year, and on the issuer scale not a view on how much you recover. Recovery ratings and issue-level notching are separate.
   6. Worth stating the known weakness: agencies are paid by issuers, they were badly wrong on structured finance in 2007, and they are slow through turning points — downgrades lag the market by months. A good credit analyst uses the report for disclosure and does their own work on the conclusion.

   Where candidates lose it

   Listing only the financial ratios. Business risk is usually the bigger driver of the rating, and financial policy is what decides borderline cases. Leaving out the agencies' conflict of interest and their lag also reads as naive — say it before they do.

   Expect next

   • Which matters more, business risk or financial risk?
   • What is comparable ratings analysis?
   • Why do agencies lag the market?
2. 030Where is the line between investment grade and high yield, and why does it matter so much?Credit analysis and ratingsCorephone / first roundLeveraged financeCredit research

   Say this

   BBB minus from S&P and Fitch, Baa3 from Moody's, is the lowest investment grade rung. One notch lower, BB plus or Ba1, is high yield. The line matters because it changes who is allowed to own the bond, not just what it costs.

   Then walk it

   1. The pricing step is real but not the main event. Crossing the line typically widens spread by 100 to 200 basis points, more in a stressed market.
   2. The ownership step is the main event. Many insurance, pension and mandate rules restrict or penalise sub-investment-grade holdings, and index membership changes: the bond leaves the IG index and enters the HY index, forcing mechanical selling by one set of funds and buying by a smaller set.
   3. Structure changes too. IG bonds are typically bullets with light covenants and no call protection beyond a make-whole. High yield comes with a non-call period, a declining call premium, and a full incurrence covenant package.
   4. Bank behaviour changes. Revolvers get smaller and secured, commercial paper access disappears, and derivative counterparties want collateral. The funding model shifts from unsecured and flexible to secured and negotiated.
   5. A fallen angel is an issuer downgraded from IG to HY, and a rising star is the reverse. Fallen angels move markets because the forced seller base is far larger than the natural buyer base — the 2020 downgrades of Ford and Kraft Heinz are the canonical examples, and they widened the whole HY index.
   6. Which is why so many issuers cluster at BBB. Keeping the last IG notch is often an explicit board-level financial policy, and it constrains buybacks and M&A in a way that is genuinely visible in behaviour.

   Where candidates lose it

   Naming the rating boundary and nothing else. The question is really about consequences: investor base, index membership, covenant package and bank access. The forced-seller mechanics of a fallen angel is the detail that shows you follow the market.

   Expect next

   • What is a fallen angel and why does it move the index?
   • Why do so many issuers sit at BBB?
   • How does the covenant package change below the line?
3. 033What specific line items on the financial statements would you look at when evaluating creditworthiness?Credit analysis and ratingsIntermediatetechnicalRCRBC Capital MarketsCorporate Banking · New York · 2026

   Say this

   I would go line by line with cash in mind. On the income statement: revenue trend, gross margin, EBIT and interest expense. On the cash flow statement: cash from operations, capex and the working capital swings. On the balance sheet: total debt by maturity, cash, and the off-balance-sheet items sitting in the notes.

   Then walk it

   1. Income statement: revenue growth and its stability, gross margin as the read on pricing power, EBIT, and interest expense. Interest expense divided by average debt gives you the effective rate, which is a fast check on whether the stated cost of debt is real.
   2. Cash flow statement is where I spend most time, because it is the hardest to dress up. Cash from operations versus EBITDA tells you the conversion rate. Working capital swings tell you whether growth consumes cash. Capex split between maintenance and growth tells you what is discretionary in a downturn.
   3. Balance sheet: debt by instrument and maturity, not just the total. Cash and undrawn revolver capacity, because liquidity kills companies before leverage does. Then receivables and inventory days against history, since a deterioration there is an early warning.
   4. The notes are where the real work is: operating and finance lease obligations, pension deficits, contingent liabilities, guarantees, receivables factoring and supply chain finance programmes, and the debt maturity table. Any of these can add a turn of effective leverage.
   5. Then the structural question the statements only half answer: which entity in the group actually owes the debt, and where do the assets and cash sit. Consolidated leverage of 3 times can hide a holdco that is structurally subordinated to everything.
   6. One quick number to illustrate: a retailer with 500 million of lease obligations and 300 million of drawn debt has effective leverage that is roughly double what the debt line suggests, and pre-IFRS 16 that was entirely invisible on the face of the balance sheet.

   Where candidates lose it

   Naming only the debt line and EBITDA. The answer that impresses a corporate banking interviewer goes to the notes — leases, pensions, factoring, guarantees — and then asks which legal entity owes the money. That is the difference between a ratio and a credit view.

   Expect next

   • How would you adjust EBITDA and debt for leases?
   • What would you check in the notes first?
   • How do you spot receivables factoring?

   Reported by candidates at RBC Capital Markets (Corporate Banking, New York, 2026). Source: Wall Street Oasis.

4. 035What is the difference between credit and equity investments?Credit analysis and ratingsIntermediatetechnicalKKRDistressed Debt · New York · 2025

   Say this

   Payoff shape. Equity has unlimited upside and you lose everything at zero; credit has capped upside — you get par and your coupon — and real downside. So equity analysis is about how good it can get and credit analysis is about how bad it can get without you being impaired.

   Then walk it

   1. The asymmetry drives everything else. Your best case as a lender is that you get paid back on time, which you already priced. So the entire analytical effort goes into the downside scenario and the recovery if it happens.
   2. That changes what you study. Equity focuses on growth, margin expansion and terminal value. Credit focuses on cash flow adequacy, liquidity, the maturity wall, asset coverage and the documentation.
   3. It changes the seat at the table. Debt is a contract, so a lender has rights: covenants, information, consent, and in a default, control. Equity has votes and hope. In distress the creditor is the one who decides.
   4. It changes how you size. A credit portfolio needs diversification because one zero cannot be offset by a winner — there are no winners, only par. An equity book can carry concentrated positions because one 10-bagger pays for many failures.
   5. For a distressed seat specifically, the two converge. You buy debt at 40 with a view on the reorganised enterprise value, so you are underwriting equity economics through a debt instrument, and the fulcrum security is where the ownership lands.
   6. The honest framing to add: both are claims on the same enterprise value. A credit analyst who cannot value the business cannot value the recovery, so good credit work includes the equity work — it just stops caring above the point where you are made whole.

   Where candidates lose it

   Answering only 'debt is senior and safer'. The concept the interviewer wants is the asymmetric payoff and the shift from upside to downside analysis. For a distressed seat, add that the two converge and name the fulcrum security.

   Expect next

   • So what is the fulcrum security?
   • How does that change position sizing?
   • Would you rather own the debt or the equity of a company you think doubles?

   Reported by candidates at KKR (Distressed Debt, New York, 2025). Source: Wall Street Oasis.

5. 036How does operating leverage affect debt versus equity holders?Credit analysis and ratingsHardsuperdayOaktree Capital ManagementCredit · Los Angeles · 2024

   Say this

   Operating leverage amplifies the volatility of EBIT, and because equity is the residual claim, equity holders get the amplified upside and downside while debt holders get amplified downside with no upside. So high operating leverage is straightforwardly bad for a lender and a mixed blessing for a shareholder.

   Then walk it

   1. Mechanism: a high fixed-cost base means a small revenue change produces a large EBIT change. A business with 70 percent fixed costs loses about 2.3 times as much EBIT percentage-wise as its revenue decline.
   2. Take an airline, a steel mill or a semiconductor fab. Revenue down 20 percent can take EBIT down 60 or 70 percent and straight through interest coverage. Same 20 percent decline at a staffing agency, where costs are variable, barely moves EBIT.
   3. For the lender, that translates into a much fatter left tail on coverage and leverage. So you lend less, at a higher spread, with tighter covenants, and you underwrite to a trough EBITDA rather than a mid-cycle one.
   4. For the equity holder it cuts both ways, and in a recovery it is spectacular: the same amplification means EBIT triples off a trough. That is why cyclical equities rally hardest early in a cycle.
   5. The critical interaction is with financial leverage. Operating leverage and financial leverage multiply. A high fixed-cost business at 5 turns of debt is a fundamentally different credit from a subscription business at 5 turns, which is exactly why software gets levered higher than shipbuilding at the same rating.
   6. So the practical rule for a credit investor: set your maximum leverage inversely to operating leverage. And the number to watch is not leverage at all but EBITDA volatility through the last two downturns.

   Where candidates lose it

   Explaining operating leverage correctly and never connecting it to the lending decision. The point the interviewer is testing is that operating and financial leverage compound, so the maximum debt a business can carry depends on its cost structure. Say that out loud.

   Expect next

   • So how much debt would you lend to an airline versus a software company?
   • How do you estimate trough EBITDA?
   • Does high operating leverage ever help a lender?

   Reported by candidates at Oaktree Capital Management (Credit, Los Angeles, 2024). Source: Wall Street Oasis.

6. 039Explain notching and structural subordination.Credit analysis and ratingsIntermediatesuperdayRating agenciesCredit research

   Say this

   Notching is the agency's adjustment from the issuer's corporate family rating to a specific instrument, reflecting where that instrument sits in priority and what it would recover. Structural subordination is one reason for it: debt at a holding company ranks behind all the liabilities of the subsidiaries that actually own the assets, even if it is contractually senior.

   Then walk it

   1. Start with the family rating, which is a view on probability of default for the whole group. Then each instrument is notched up or down for expected recovery. Senior secured usually up a notch or two, senior unsecured at the family level, subordinated and PIK down one to three.
   2. Contractual subordination is the obvious kind: the document says you get paid after the senior debt. Structural subordination is quieter and often larger.
   3. The mechanism: a holdco owns equity in opcos. Equity is the residual claim, so holdco creditors are only paid from what is left after every opco creditor, trade payable and lease obligation is satisfied. You are effectively behind liabilities you never underwrote.
   4. That is why lenders demand upstream guarantees and share pledges from the operating companies. A guaranteed holdco note ranks alongside opco debt; an unguaranteed one does not, and the rating and pricing gap between the two can be 150 basis points or more.
   5. A concrete shape: group at 3 times consolidated leverage, but 2.5 turns sits at the opcos and 0.5 at the holdco. Holdco leverage looks tiny and its effective leverage is 3 times, because it is behind everything.
   6. The check to run every time: which legal entity is the borrower, which entities guarantee, where do the assets and cash sit, and are there non-guarantor subsidiaries. Unrestricted subsidiaries are the modern version of this problem, because assets can be moved into them and out of your reach.

   Where candidates lose it

   Explaining contractual subordination and calling it structural. They are different, and the structural version is the one that surprises people, because the holdco note can look senior on paper and recover almost nothing. Always ask where the assets sit.

   Expect next

   • How would you fix structural subordination as a lender?
   • What is an unrestricted subsidiary?
   • How much is an upstream guarantee worth in spread terms?
7. 041Walk me through revenue to unlevered free cash flow.Credit modellingCoretechnicalRCRBC Capital MarketsLeveraged Finance · London · 2026

   Say this

   Revenue, less cost of goods and operating expenses to get EBITDA, less depreciation and amortisation to get EBIT, times one minus the tax rate, then add D&A back, less capex, less the increase in working capital. That gets you unlevered free cash flow, before any interest.

   Then walk it

   1. Say the word unlevered and mean it: no interest anywhere, and tax is computed on EBIT rather than on pre-tax income. Taxing EBIT is what makes it capital-structure neutral.
   2. The D&A dance looks circular but is not. You subtract it before tax because it is deductible, then add it back because it is not cash. The net effect is the tax shield only.
   3. Working capital: an increase in receivables or inventory is a use of cash, an increase in payables is a source. For a growing business this is usually a drag, and in leveraged finance it is often the line that decides whether a deal works.
   4. Capex is the judgement call. Maintenance capex is committed; growth capex is discretionary and can be cut in a downturn. For a credit case I would model the two separately, because the downside scenario turns off growth capex and keeps maintenance.
   5. For a leveraged finance seat, say what you do next: subtract cash interest, cash taxes on the levered basis, and mandatory amortisation to get cash flow available for debt service, and that is the number the covenant and the sweep actually run off.
   6. One limitation to flag: unlevered free cash flow ignores the fact that a levered borrower may have a different effective tax rate because interest is deductible. That is the whole reason the tax shield is valued separately in an APV framework.

   Where candidates lose it

   Taxing EBIT at the wrong line, or leaving interest in. If interest appears anywhere in your build it is not unlevered. And in a debt interview, do not stop at UFCF — carry it through to cash flow available for debt service, because that is the number the desk uses.

   Expect next

   • Now take it to cash flow available for debt service.
   • How do you split maintenance from growth capex?
   • Why is tax computed on EBIT rather than pre-tax income?

   Reported by candidates at RBC Capital Markets (Leveraged Finance, London, 2026). Source: Wall Street Oasis.

8. 042How does depreciation flow through the financial statements?Credit modellingCorephone / first roundOaktree Capital ManagementDebt Capital Markets · New York · 2026

   Say this

   Take 100 of depreciation at a 25 percent tax rate. Pre-tax income falls 100, tax falls 25, so net income falls 75. Cash actually rises 25, because depreciation is non-cash and the only real effect is the tax you no longer pay.

   Then walk it

   1. Income statement: 100 of depreciation reduces EBIT by 100, so pre-tax income is down 100 and net income is down 75.
   2. Cash flow statement: start from net income at minus 75, add back the 100 of non-cash depreciation, so cash from operations is up 25.
   3. Balance sheet: cash up 25, net PP&E down 100, so assets down 75. Retained earnings down 75. It balances.
   4. The point is the depreciation tax shield. A non-cash charge of 100 generated 25 of real cash, which is why capital-intensive businesses have effective tax rates below the statutory one.
   5. For a credit analyst there is a second point: EBITDA adds depreciation straight back, so it is unaffected. Which is exactly why EBITDA flatters capital-intensive borrowers — the asset is still wearing out and will need replacing with real cash capex.
   6. So when I see high depreciation I immediately compare it to capex. Capex persistently below depreciation means the business is under-investing and the cash flow is borrowed from the future.

   Where candidates lose it

   Saying cash falls. It does not — depreciation is non-cash and the only cash effect is the tax saving. In a credit interview, also make the EBITDA point: adding D&A back is why EBITDA overstates the cash a capital-intensive borrower really has.

   Expect next

   • Now do 100 of capex instead.
   • What if the company has no taxable income?
   • Why is EBITDA a poor proxy for cash flow in a capital-intensive business?

   Reported by candidates at Oaktree Capital Management (Debt Capital Markets, New York, 2026). Source: Wall Street Oasis.

9. 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.

10. 044How do you get from enterprise value to equity value?Credit modellingCorephone / first roundTSTruist SecuritiesCorporate Banking · Atlanta · 2025

    Say this

    Subtract net debt and everything else that is a non-equity claim on the business. So enterprise value, less total debt, plus cash, less minority interest, less preferred stock, less unfunded pension and capitalised leases, plus the value of associates and other non-operating assets.

    Then walk it

    1. Total debt means all debt-like obligations, not just the bonds: bank debt, drawn revolver, finance and operating leases, securitisation, and any deferred consideration that behaves like debt.
    2. Cash is added back but only the cash you could actually take out. Trapped cash in a jurisdiction with withholding tax, or cash needed for operations, is not fully creditable. Most desks haircut it.
    3. Minority interest comes off because enterprise value reflects the whole consolidated business while equity value belongs only to the parent's shareholders. Associates and joint ventures work the other way: they are not consolidated in EBITDA, so their value gets added.
    4. Preferred stock, unfunded pension deficits and mandatorily redeemable instruments are all non-equity claims. Leaving pensions out is the single most common omission, and for an old industrial it can be a billion-dollar error.
    5. For a credit analyst the bridge is the same arithmetic used in reverse: you take a market or DCF enterprise value and walk down the claims to see how much cushion sits beneath your debt. That is the equity value, and it is your margin of safety.
    6. The limitation: the bridge is only as good as the debt schedule. Off-balance-sheet items — factoring, supply chain finance, guarantees — sit in the notes and belong in net debt even though the balance sheet does not show them.

    Where candidates lose it

    Reciting 'minus net debt' and stopping. The marks are in the other claims: minorities, preferred, pensions, leases and non-operating assets. On a corporate banking desk the pension and lease adjustments are the ones they actually use.

    Expect next

    • How would you treat an unfunded pension deficit?
    • Would you add back all the cash?
    • How does this help you size a loan?

    Reported by candidates at Truist Securities (Corporate Banking, Atlanta, 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.