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. 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.

2. 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.

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.