Private Equity interview preparation

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September 2026

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1. 028How do you think about leverage levels, and what determines how much debt a business can take?Credit and financingIntermediatetechnicalLazardGeneralist · Amsterdam · 2025

   Say this

   Cash flow, not EBITDA. The test is whether the business can service interest and mandatory amortisation in a downside case with headroom left over. Lenders express that as leverage and coverage multiples.

   Then walk it

   1. The headline metrics: net debt to EBITDA and EBITDA to interest. In a normal market a stable mid-market business might support four to six times, a cyclical one less, a contracted infrastructure asset far more.
   2. But the real constraint is free cash flow after CapEx and working capital. Two businesses with identical EBITDA and different capital intensity support very different debt loads.
   3. Test it in the downside: model a 20 percent EBITDA decline and check whether covenants hold and whether interest is still covered. That downside test is what determines the structure, not the base case.
   4. Sector and cyclicality matter enormously. Lenders will fund a software business with recurring revenue at leverage they would never accept for a construction business.
   5. Market conditions set the ceiling independently of the credit. In a tight market the same business raises a turn or two less, regardless of its quality.
   6. And the sponsor's own judgement: more leverage raises IRR and raises the chance of losing the equity entirely. The optimisation is not maximum debt, it is the level that survives the downside you can actually imagine.

   Where candidates lose it

   Answering purely in EBITDA multiples. The underlying constraint is free cash flow and downside resilience. Naming the covenant test in a stressed case is what makes the answer sound like someone who has underwritten a deal.

   Expect next

   • What is the difference between incurrence and maintenance covenants?
   • How does private credit change what is available?
   • How much cushion would you want in a covenant?

   Reported by candidates at Lazard (Generalist, Amsterdam, 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.