Private Equity interview preparation

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100

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83

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September 2026

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1. 059How would you evaluate whether to lend to a construction company?Credit and financingHardsuperdayBain CapitalCredit · New York · 2024

   Say this

   Construction is one of the hardest credits there is: cyclical, low margin, with percentage-of-completion accounting that can hide problems and working capital that swings violently. I would underwrite the backlog quality and the contract structure before anything else.

   Then walk it

   1. Backlog is the revenue, so its quality is the credit. How much is contracted versus awarded, what is the execution timeline, and what is the cancellation risk?
   2. Contract structure is the single biggest determinant. Fixed-price contracts put inflation and overrun risk on the contractor; cost-plus contracts pass it to the customer. A book of fixed-price work signed before an inflation spike is where construction companies die.
   3. The accounting risk: percentage-of-completion recognises profit based on management's estimate of costs to complete. Optimistic estimates inflate current profit and reverse later. So I would test historical estimate accuracy, comparing forecast margin at each stage to the final outcome by project.
   4. Working capital is brutal: retentions held by customers, unbilled work in progress, and payables to subcontractors. Cash and profit diverge persistently, so I would underwrite cash conversion over several years rather than EBITDA.
   5. Then counterparty and concentration: who are the customers, are they creditworthy, and what happens if one large project is disputed? Construction disputes are slow and expensive.
   6. Given all of that, I would lend conservatively, at low leverage, with tight maintenance covenants and security over receivables, and I would want the historical record through a full cycle. If the business is mostly fixed-price with thin margins, I would probably pass.

   Where candidates lose it

   Applying a generic credit framework. The sector-specific risks are percentage-of-completion estimate manipulation and fixed-price contract exposure. Naming both, and saying how you would test estimate accuracy, is the answer.

   Expect next

   • How would you test their cost-to-complete estimates?
   • What covenants would you want?
   • What leverage would you actually lend at?

   Reported by candidates at Bain Capital (Credit, New York, 2024). 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.