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.

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.