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. 077What is covenant-lite, and what is a springing covenant?Covenants and documentationHardtechnicalLeveraged financePrivate credit

   Say this

   Covenant-lite means a term loan with no maintenance financial covenant — it has incurrence covenants like a bond. A springing covenant is the compromise: the revolver carries a leverage or coverage test that only applies if revolver utilisation exceeds a threshold, typically 35 to 40 percent.

   Then walk it

   1. What covenant-lite does not mean: it does not mean no covenants. Negative covenants restricting debt, liens, asset sales, restricted payments and affiliate transactions all remain. What is gone is the quarterly financial test.
   2. The springing mechanic: the revolver, which is bank-held, gets a test that springs into existence when drawings exceed the threshold. Term loan lenders get no benefit from it, which is the point — banks protected themselves and institutional lenders did not.
   3. What actually changed in practice: the early warning system. Under a maintenance test, a deteriorating borrower comes to lenders in quarter two. Covenant-lite, they arrive when liquidity runs out, often several quarters later, with less enterprise value left to divide.
   4. It also enabled the liability management era. Without a maintenance test there is no default to trigger, so a struggling borrower has time and room to use the permissive baskets — drop-downs, uptiers, priming transactions — before lenders can act.
   5. The genuinely fair counterargument: maintenance defaults sometimes forced restructurings on businesses that would have recovered, and cov-lite loans have not defaulted at higher rates than covenanted ones. The damage shows up in recovery severity, not default frequency.
   6. So for a lender the practical response is to substitute monitoring for covenants: monthly reporting where you can get it, liquidity tracking, and very close reading of the baskets and the EBITDA definition. And to price the documentation, not just the credit.

   Where candidates lose it

   Saying cov-lite means there are no covenants. The negative covenants are still there and they are what get exploited. Also, the sophisticated point is that cov-lite shows up in recovery severity rather than default frequency — that is the distinction interviewers reward.

   Expect next

   • At what utilisation does a springing covenant typically trigger?
   • So does cov-lite increase defaults or just worsen recoveries?
   • How do you monitor a cov-lite credit?
2. 078Explain call protection — non-call periods, the call schedule and a make-whole.Covenants and documentationIntermediatetechnicalLeveraged financeFixed income asset management

   Say this

   Call protection is what stops an issuer refinancing away a bond the moment it gets cheaper. High yield uses a hard non-call period then a declining premium schedule; investment grade uses a make-whole, which requires the issuer to pay the present value of all remaining cash flows, so calling is almost never economic.

   Then walk it

   1. High yield structure on a typical 7-year deal: non-call 3, then callable at 103 in year 4, 101.5 in year 5, and par thereafter. The premium usually starts at half the coupon and steps down. NC2 or NC1 on a 5-year is common for stronger credits.
   2. Alongside it, an equity clawback letting the issuer redeem up to 35 or 40 percent at par plus the coupon out of IPO proceeds, and a 10 percent per year at 103 carve-out on many recent deals. Those carve-outs erode the protection and are worth reading for.
   3. Make-whole: the redemption price is the present value of all remaining coupons and principal discounted at the relevant Treasury yield plus a small spread, usually 25 to 50 basis points. Because the discount rate is below the bond's own yield, the make-whole price is above market, so the option is out of the money by construction.
   4. Which is why investment grade issuers almost never call. They tender instead, which is a market transaction at a negotiated price rather than exercising a contractual right.
   5. Loans are the opposite extreme: prepayable at par, with at most a 101 soft call for six to twelve months, which only applies to a repricing refinancing. That prepayability is a big part of why sponsors like loans.
   6. The investor consequence to state: call protection is what you are paid for in the spread. A bond with weak call protection and generous carve-outs should trade wider than one without, and a portfolio manager who does not price the call schedule is giving away option value.

   Where candidates lose it

   Describing a make-whole as just 'a penalty'. It is a present value calculation designed to make the call uneconomic, and saying why — the discount rate is below the bond's yield — is the technical point. Also do not forget that loans have essentially no call protection, because that contrast is the commercial insight.

   Expect next

   • Why is a make-whole call almost never exercised?
   • What is an equity clawback?
   • How would you value the call option in a high yield bond?
3. 079What are restricted payments, and what is a builder basket?Covenants and documentationHardsuperdayLeveraged financePrivate credit

   Say this

   Restricted payments are transfers of value out of the credit group — dividends, share buybacks, payments on junior debt, and investments in unrestricted subsidiaries. The builder basket is a growing allowance for them, usually 50 percent of cumulative consolidated net income since the deal closed, which means the more the company earns the more it may leak out.

   Then walk it

   1. Why lenders care: your credit support is the enterprise value inside the restricted group. Anything leaving it reduces your recovery, so the restricted payments covenant is the ring fence around your collateral.
   2. The permission architecture, and you should name all four layers: the builder basket; a fixed general basket, often set as the greater of a dollar amount and a percentage of EBITDA, which means it grows as EBITDA grows; a ratio-based basket permitting unlimited payments if leverage is below a threshold; and specific carve-outs for things like management equity buybacks.
   3. The builder basket mechanics: typically 50 percent of cumulative consolidated net income from the closing date, sometimes with the option of 100 percent of a growth-based metric instead. It is cumulative and it never resets, so in a long hold it can become very large.
   4. The abuse route that matters most is the investment basket into unrestricted subsidiaries. Move valuable assets — intellectual property, a brand, a business line — into an unrestricted subsidiary using restricted payment or investment capacity, and it is outside the credit group. Then borrow against it. That is the drop-down transaction, and J.Crew is the case everyone cites.
   5. So the analysis I would actually do: total up every basket, express it as a multiple of EBITDA, and ask what the borrower could legally take out of my collateral tomorrow. On aggressive 2021-vintage documents that number has been several turns of EBITDA.
   6. And check the EBITDA definition, because every basket sized off EBITDA inherits the add-backs. A generous EBITDA definition multiplies every single basket in the document simultaneously.

   Where candidates lose it

   Defining restricted payments as just dividends. The dangerous item is investments in unrestricted subsidiaries, because that is how assets leave the collateral pool. If you cannot connect restricted payment capacity to the J.Crew drop-down, you have missed why this covenant is the one credit funds read first.

   Expect next

   • How did the J.Crew transaction actually work?
   • How would you size total leakage capacity?
   • Why does the EBITDA definition amplify every basket?
4. 080What is an EBITDA add-back, and why do lenders fight so hard over the definition?Covenants and documentationHardsuperdayLeveraged financePrivate credit

   Say this

   An add-back is an adjustment that increases covenant EBITDA above reported EBITDA — restructuring costs, transaction fees, run-rate synergies, unrealised cost savings. Lenders fight over it because every ratio in the document runs off EBITDA, so a generous definition simultaneously lowers reported leverage, widens every basket and expands covenant headroom.

   Then walk it

   1. The legitimate ones are uncontroversial: genuinely non-recurring restructuring charges, one-off transaction expenses, and non-cash items like stock compensation and impairments.
   2. The contentious ones are forward-looking: pro forma run-rate synergies and cost savings from actions not yet taken. These are projections written into a contract as if they were facts, often with an 18 to 24 month realisation window and sometimes uncapped.
   3. The leverage arithmetic makes the stakes obvious. Reported EBITDA 100, debt 500, so 5 times. Add back 25 of synergies and leverage becomes 4 times on the same debt. Nothing changed in the business and a full turn of leverage disappeared.
   4. Then it compounds, because every basket sized as a percentage of EBITDA grows too — general debt baskets, restricted payment baskets, investment baskets, incurrence ratios. One definition change loosens the whole document at once.
   5. What lenders negotiate for: a hard cap on add-backs, commonly 20 to 25 percent of EBITDA; a shorter realisation period; a requirement that actions be identified and steps taken; and no double-counting against actual results once savings arrive.
   6. The single best diagnostic in leveraged credit: track reported EBITDA against covenant EBITDA quarter by quarter. A widening gap, especially where synergies keep being added but reported EBITDA does not grow, is the clearest early warning there is.

   Where candidates lose it

   Treating add-backs as an accounting curiosity. They are a leverage-reduction device, and the point that clinches the answer is that a generous EBITDA definition loosens every ratio and every basket in the document at the same time. Give the 5 times to 4 times arithmetic out loud.

   Expect next

   • What cap on add-backs would you insist on?
   • How do you test whether synergies arrived?
   • What does a widening reported-to-covenant EBITDA gap tell you?
5. 082What is the difference between a tender offer, an exchange offer and a consent solicitation?Liability managementHardtechnicalRestructuringLeveraged finance

   Say this

   A tender buys bonds back for cash. An exchange swaps old bonds for new ones, usually with a longer maturity. A consent solicitation buys a change to the indenture terms without changing the bonds themselves. All three are voluntary, and all three depend on how much of the class you can persuade.

   Then walk it

   1. Tender: the issuer offers cash, either at a fixed price, at a fixed spread over a benchmark, or through a modified Dutch auction where holders name their price and the issuer fills up to a cap. Used to retire a maturity early, to buy back debt trading at a discount, or to clean up an old high-coupon line.
   2. Exchange: swap into new paper. A par-for-par exchange that extends maturity is the classic amend-and-extend in bond form. A discount exchange — new bonds with lower face value — is a distressed exchange, and agencies will typically treat it as a default even though it is consensual.
   3. Consent solicitation: pay holders a small consent fee to amend the indenture. Covenant changes usually need a simple majority; changing the money terms — principal, coupon, maturity — normally needs 90 percent or unanimity. That distinction is what limits how far you can push it.
   4. Exit consents are the aggressive version and worth naming: combine an exchange with a consent that strips covenants from the old bonds, so anyone who does not participate is left holding worse paper. It is coercive by design and it has been litigated repeatedly.
   5. Why an issuer prefers these to a call: for investment grade paper the make-whole makes calling uneconomic, so a tender at a negotiated price is cheaper. For distressed paper, an exchange preserves cash the company does not have.
   6. The honest caveat: none of these bind non-participants on the money terms. A holdout keeps its original bond, and a small aggressive holdout can block a deal or extract a better price, which is why liability management is as much negotiation as structuring.

   Where candidates lose it

   Merging exchange offers and consent solicitations. One changes the instrument, the other changes the terms of the existing instrument, and they need different consent thresholds. Also, saying a discount exchange is treated as a default by the agencies is the detail that shows you know the real-world consequence.

   Expect next

   • What is an exit consent and why is it controversial?
   • What threshold do you need to change the coupon?
   • Why not just call the bonds?
6. 087What is an NCD, and how does a public NCD issue work in India?Indian debt marketsCoretechnicalIndian debt capital marketsCorporate banking

   Say this

   An NCD is a non-convertible debenture — a plain corporate bond under Indian law, so called to distinguish it from convertible debentures. It can be secured or unsecured, and it is issued either by private placement to institutions, which is most of the market, or by a public issue to retail investors under SEBI's debt listing regulations.

   Then walk it

   1. The private placement route is the market: a company with a board and shareholder authorisation issues to up to 200 identified investors per financial year per class, executes a debenture trust deed, and now must bid it on the electronic bidding platform above a size threshold. Listing on NSE or BSE follows, and settlement is through the depositories.
   2. The public issue route is what retail investors see. It needs a SEBI-filed prospectus, a credit rating, a debenture trustee, a minimum subscription, a fixed subscription window of a few days, and allocation across reserved categories — institutional, non-institutional, high net worth individual and retail.
   3. Who uses public issues: mainly NBFCs and housing finance companies, because they need retail funding and can offer coupons a few hundred basis points above bank deposits. Retail NCD issues from names like the large gold loan and vehicle finance NBFCs are a regular feature of the market.
   4. Secured versus unsecured matters here more than in a developed market. A secured NCD carries a charge over specific assets or a floating charge on receivables, with security cover — commonly 1 to 1.25 times — maintained through the life and certified periodically. Unsecured NCDs, especially subordinated ones that count as Tier II capital for an NBFC, are a different credit entirely.
   5. The trustee has real teeth post-2020 reforms: SEBI strengthened debenture trustee obligations on security creation, monitoring and enforcement after several defaults where security turned out to be incomplete.
   6. The risk to say honestly: a retail investor buying a 10 or 11 percent NCD from an NBFC is taking genuine credit risk at a rating that may be AA or lower, and the IL&FS and DHFL defaults showed what that means. High coupon in the Indian retail market is a credit signal, not a bargain.

   Where candidates lose it

   Treating an NCD as an exotic instrument. It is just a corporate bond, and the useful content is the private placement versus public issue distinction, the security cover mechanic and the trustee's role. Naming the NBFC defaults shows you understand why the retail investor protections were tightened.

   Expect next

   • Why do NBFCs dominate the retail NCD market?
   • What is security cover and who certifies it?
   • How is NCD interest taxed for a retail investor?
7. 088Walk me through the Indian government securities curve. Who issues, who buys, and what drives it?Indian debt marketsIntermediatetechnicalIndian debt capital marketsFixed income asset management

   Say this

   The RBI issues G-secs on behalf of the central government through weekly auctions, running from 91-day treasury bills out to 40 years. Banks, insurers and provident funds are the dominant buyers, largely because they are required to be. The curve is driven by the RBI's policy rate, the government's borrowing calendar, and since 2024 by foreign flows through global bond index inclusion.

   Then walk it

   1. Supply mechanics: a half-yearly borrowing calendar, weekly auctions conducted on the RBI's electronic platform, with primary dealers obliged to bid and to underwrite. State governments issue separately as state development loans, which trade at a spread of typically 30 to 70 basis points over the comparable central G-sec.
   2. Demand is structurally captive. Banks must hold a statutory liquidity ratio of government securities, insurers and provident funds have prescribed minimum allocations, and that mandated demand is why India can fund a large deficit at moderate yields with a shallow corporate market.
   3. The 10-year benchmark is the reference point for everything else. Corporate bonds are quoted as a spread over the comparable G-sec, so the curve is the pricing backbone of the whole debt market, just as Treasuries are in the US.
   4. Drivers: the repo rate and the RBI's stance, inflation prints and the monetary policy committee's 4 percent target with a 2 to 6 percent band, the fiscal deficit and the gross borrowing number in the Budget, banking system liquidity, and crude oil, because India imports most of its energy and that feeds both inflation and the current account.
   5. The 2024 change worth knowing: inclusion of Indian G-secs in JP Morgan's emerging market bond index, and subsequently others, brought substantial passive foreign inflows for the first time. That has compressed yields, lengthened the buyer base, and also introduced a new source of volatility from global flows.
   6. The honest caveat: because so much demand is mandated, the curve is not a pure market signal about growth or inflation in the way the US curve is. Regulatory allocation and RBI liquidity operations can move it independently of fundamentals.

   Where candidates lose it

   Describing it like the Treasury market. The distinctive Indian features are the captive regulatory demand through SLR and insurance mandates, the state development loan spread, and the 2024 index inclusion. Without those the answer is generic and could be about any sovereign.

   Expect next

   • What did index inclusion change?
   • Why do SDLs trade wide of central G-secs?
   • How does the SLR requirement affect bank behaviour?
8. 089How do CRISIL, ICRA and CARE ratings compare to Moody's and S&P, and why can't you compare them directly?Indian debt marketsIntermediatetechnicalIndian debt capital marketsRating agencies

   Say this

   The Indian agencies rate on a national scale, which is calibrated within India and effectively anchored to the sovereign. So an Indian AAA is the best credit in India, not the equivalent of a global AAA — the sovereign itself is around BBB minus on the global scale, so a domestic AAA maps to somewhere around BBB globally.

   Then walk it

   1. The main agencies: CRISIL, majority owned by S&P; ICRA, majority owned by Moody's; CARE, independent; India Ratings, owned by Fitch; plus Brickwork, Acuite and Infomerics. All are SEBI-registered credit rating agencies, and RBI separately accredits agencies for bank capital purposes.
   2. The national scale is the key concept. It ranks credits relative to each other within one country, with the top of the scale pinned to the strongest domestic credits. It says nothing about cross-border comparability, which is why a company rated AAA domestically may be unrated or low investment grade internationally.
   3. So the comparison rule: use the global scale rating if you need to compare across countries, and remember the sovereign ceiling — very few corporates are rated above their sovereign, and those that are have genuinely offshore cash flows.
   4. The credibility issues to acknowledge honestly: IL&FS was rated AAA shortly before defaulting in 2018, and DHFL similarly. SEBI responded with disclosure of rating rationales and sharp rating actions, standardised probability of default benchmarks, mandatory disclosure of rating transition and default rates, and rules on rating withdrawal and issuer non-cooperation.
   5. Practical reading discipline: check whether a rating is on watch or has a negative outlook, look at the rating history rather than the point-in-time letter, look for the issuer-not-cooperating flag, and read the rationale for what the agency says about liquidity, because in India liquidity is what kills issuers rather than leverage.
   6. The genuinely useful part: because bank loan ratings are mandatory, India has rating coverage of tens of thousands of entities, most of them small and private. That is a data asset with no real parallel elsewhere.

   Where candidates lose it

   Treating an Indian AAA as a global AAA. That is the single error this question exists to catch. Name the national scale, the sovereign anchor, and then the IL&FS episode, because an interviewer will otherwise ask whether you trust the ratings at all.

   Expect next

   • What went wrong with IL&FS?
   • What does issuer-not-cooperating mean?
   • Why does India have so many rated entities?
9. 090What is SEBI's electronic bidding platform, and what problem does it solve?Indian debt marketsHardtechnicalIndian debt capital marketsSyndicate desks

   Say this

   The EBP is an exchange-run electronic platform on which private placements of debt above a size threshold must be bid and allotted. It solved a transparency problem: private placements were previously negotiated bilaterally with no visible price discovery, so investors could not tell whether they were being fairly priced.

   Then walk it

   1. Mechanics: the issuer puts up a bid notice with the terms — size, tenor, coupon or spread, rating, security — a day or two ahead. Investors bid within a defined time window. Allotment follows a stated method, either uniform yield or multiple yield, and the results are published.
   2. The threshold has been progressively lowered by SEBI, so a large and growing share of private placements now goes through it rather than being done over the phone. Issues below the threshold, and certain categories, remain outside.
   3. What it fixed: before EBP, an NBFC could place paper with one institution at one yield and identical paper with another at 40 basis points different, and nobody would know. That opacity depressed participation, because an investor who cannot verify the price assumes they are the one being mispriced.
   4. Second benefit: it created a data trail. Published bid results give the market a series of primary levels for credits that otherwise never trade, which partially substitutes for the missing secondary market.
   5. The honest limits: EBP improves primary price discovery, it does not create secondary liquidity, and the underlying demand problem below AA is untouched. Issuers have also at times structured around the thresholds, and anchor investor arrangements can still effectively pre-determine an outcome.
   6. Where it fits in the reform set worth naming alongside it: the request-for-quote platform for secondary trades, corporate bond repo, the large-corporate mandatory bond financing framework, and the Bharat Bond ETFs. Together they are an attempt to build a market, and EBP is the piece that worked most clearly.

   Where candidates lose it

   Confusing EBP with a secondary trading venue. It is a primary issuance platform, and the separate RFQ platform handles secondary. Also, be honest that it fixed price discovery and not liquidity, because overclaiming on Indian market reform is easy to catch out.

   Expect next

   • What is the RFQ platform?
   • Does EBP improve secondary liquidity?
   • What is the large corporate borrowing framework?
10. 091What is a masala bond, and why did issuance largely dry up?Indian debt marketsIntermediatetechnicalIndian debt capital markets

    Say this

    A masala bond is a rupee-denominated bond issued offshore, so the issuer borrows in rupees and the foreign investor takes the currency risk. Issuance dried up because the investor base was never deep, the all-in cost after the rupee risk premium was rarely better than domestic funding, and RBI's caps and the withholding tax treatment removed the remaining advantage.

    Then walk it

    1. The structure's whole point: an Indian issuer with rupee cash flows avoids the currency mismatch that killed so many emerging market borrowers. Unlike a dollar bond, depreciation does not increase the debt service burden.
    2. That risk has to go somewhere, and it went to the offshore investor, who priced it. So masala coupons were high — often 7 to 8 percent or more — and the issuer was effectively paying the market's view of rupee depreciation plus a premium for taking an unhedged position.
    3. Who used it: IFC issued the first ones, then HDFC, NTPC, the Indian Railway Finance Corporation and several state entities, and a notable green masala from NTPC. Total issuance peaked around 2016 to 2017 and then faded.
    4. Why it faded. First, arithmetic: once you compared the masala coupon against domestic NCD pricing for the same issuer, the saving was thin or negative. Second, the RBI's external commercial borrowing framework capped pricing and minimum maturities, which constrained the structures that would have worked. Third, the withholding tax concession that made them attractive was allowed to lapse and then applied unevenly.
    5. Fourth, the demand side was always narrow. Very few global funds want unhedged rupee exposure in a bond format, and those that do can now buy Indian government securities directly following index inclusion, which is a better instrument for the same trade.
    6. Which is the real answer to the question: index inclusion of G-secs gave foreign investors a liquid, sovereign-risk way to take rupee duration. That is a straightly better product than an illiquid offshore corporate rupee bond, so the niche closed.

    Where candidates lose it

    Describing the mechanics and stopping. The question is why they failed, and the answer is that the currency risk premium the offshore investor demanded exceeded the funding saving, plus the demand base has since been better served by direct G-sec access. Naming actual issuers makes it concrete.

    Expect next

    • Who bore the currency risk and how did they price it?
    • How does the ECB framework constrain this?
    • Would a green masala bond work better?

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.