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. 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 050Walk me through a bond issue from mandate to settlement.Primary issuanceIntermediatetechnicalSyndicate desks

    Say this

    Six stages: win the mandate, sort the ratings and documentation, announce and market, build the book, price, then allocate and settle. For a seasoned investment grade issuer the whole thing after documentation can run in a single day; for a debut high yield issuer it is six to twelve weeks.

    Then walk it

    1. Mandate: the issuer picks bookrunners, usually rewarding its relationship banks and lenders. Roles get carved up — global coordinator, active and passive bookrunners — and fees on an investment grade deal are thin, often 20 to 40 basis points, because the real payment is relationship credit.
    2. Preparation: ratings advisory and the agency process if needed, then documentation. Under a standing programme like an MTN or EMTN shelf you are updating a base prospectus; a debut issuer builds an offering memorandum from scratch, with due diligence, comfort letters and legal opinions.
    3. Announcement and marketing: announce the deal with initial price thoughts, or IPTs, then roadshow if the credit needs explaining. Investment grade repeat issuers often skip the roadshow entirely and announce in the morning for pricing the same afternoon.
    4. Book-building: investors put in orders with price limits. The syndicate watches the book grow, then revises guidance tighter, then sets the spread at launch. Orders get scaled as the price tightens, and a good book is oversubscribed several times with real, sticky accounts.
    5. Pricing: set the spread over the benchmark, fix the coupon so the bond prices at or near par, and sign. Then allocation, where the syndicate and issuer decide who gets what — long-only funds and insurers favoured over fast money.
    6. Settlement: T plus 2 or T plus 3 typically, through the clearing systems, with the issuer receiving proceeds net of fees. Then the bond starts trading in the secondary market, and the syndicate watches whether it performs, because trading below reoffer is a bad look for everyone.

    Where candidates lose it

    Describing it like an IPO with a two-week roadshow. Most investment grade bond deals are announced and priced the same day, and knowing that difference in tempo is what shows you understand the product. Also name the fee level — candidates who think bond fees resemble M&A fees give themselves away.

    Expect next

    • How does that timeline differ for a debut high yield issuer?
    • What are initial price thoughts?
    • What happens if the bond trades below reoffer?

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.