Private Equity interview preparation

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September 2026

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1. 030How would you think about a dividend recapitalisation?Fund economicsHardtechnicalRothschild & CoInvestment Banking · London · 2026

   Say this

   Refinance the company to pull cash out to the sponsor without selling. It resets the IRR clock by returning capital early, but it re-levers the business and makes it more fragile.

   Then walk it

   1. Preconditions: the company must have deleveraged enough that re-levering to roughly the original multiple is fundable, and the cash flow must be stable enough that lenders will support it.
   2. The motivation is nearly always sponsor-side: fund life is advancing, the exit window is unattractive, and returning capital early de-risks the deal and flatters the IRR because early cash flows are weighted heavily.
   3. It changes the return profile: money multiple is barely affected, IRR improves materially. That divergence is exactly why limited partners scrutinise recaps.
   4. The downside: leverage is back up, the equity cushion is thinner, and covenant headroom shrinks. If the cycle turns, the business is in trouble and the sponsor has already taken its money off the table.
   5. Lenders price this. A recap financing usually carries a wider spread and tighter terms than the original, reflecting the reduced equity commitment.
   6. The honest assessment: it is a legitimate tool for a genuinely stable asset with excess debt capacity, and it is also how sponsors have historically extracted returns from deals that were not performing well enough to sell.

   Where candidates lose it

   Describing it as free money for the sponsor without the fragility point. Also missing that it inflates IRR while leaving multiple on invested capital unchanged, which is the distinction limited partners actually focus on.

   Expect next

   • How does it affect IRR versus money multiple?
   • Why would lenders agree?
   • What would a limited partner think about it?

   Reported by candidates at Rothschild & Co (Investment Banking, London, 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.