Private Equity interview preparation

Questions

100

Traced to a firm

83

Firms

40

Updated

September 2026

Asked at

All firmsAdvent International6Apollo Global Management6Audax Group6Carlyle Group6EQT6Silver Lake6Vista Equity Partners6WPWarburg Pincus6HIH.I.G. Capital5Oaktree Capital Management5Platinum Equity5TPTPG5General Atlantic4AMAres Management3Blackstone3Clayton Dubilier and Rice3GSGuggenheim Securities3Insight Partners3Invesco3Lazard3Neuberger Berman3NUNuveen3TSTruist Securities3Bain Capital2HWHarris Williams2Kohlberg Kravis Roberts2Millennium Management2Moody's2Rothschild & Co2WBWilliam Blair2Bessemer Venture Partners1Citi1Evercore1FTFranklin Templeton1Houlihan Lokey1HPS Investment Partners1KKR1Mizuho1MSMorgan Stanley1Sycamore Partners1

Topic

All topicsLBO mechanics7Value creation5Returns2Fund economics9Investment judgement18Valuation6Firm knowledge2Credit and financing9Operations4Due diligence8Career and fit11Sector knowledge4Accounting2Deal structuring7Industry knowledge3Brainteasers3

Level

AnyCoreIntermediateHard

Type

AnyTechnicalCaseFitMarket viewBrainteaser

1. 014How much would you pay for a security that returns two times your money on a 12 percent PIK with no compounding?Credit and financingHardtechnicalApollo Global ManagementGeneralist · New York · 2019

   Say this

   Work out how long it takes to double at 12 percent simple. With no compounding, the accrual is 12 percent of par each year, so you double in a little over eight years. Then discount that to whatever return you require.

   Then walk it

   1. No compounding means simple interest: 12 percent of the original principal accrues each year, so the balance reaches two times par after 100 divided by 12, which is 8.33 years.
   2. So the instrument pays 2.0 times at year 8.33 if you buy at par.
   3. Now discount at your target. At a 15 percent required return, the present value of 2.0 in 8.33 years is 2.0 divided by 1.15 to the power 8.33, which is roughly 0.63 times par.
   4. So you would pay around 63 cents on the dollar to earn 15 percent. At a 20 percent target the price drops to roughly 45 cents.
   5. Then the credit judgement, which is the real content: PIK means no cash comes in for eight years, so your entire return depends on the borrower surviving and being able to refinance the accreted balance at maturity. That balance will be twice what you lent.
   6. So I would want to see enterprise value coverage at maturity against that grown claim, not against today's. If the business cannot support twice the debt in eight years, the security is worth far less than the arithmetic suggests.

   Where candidates lose it

   Treating it as compounding, which gives about six years instead of eight, or stopping at the arithmetic without the credit judgement. The point of a PIK question is the accreting claim and the refinancing risk at maturity.

   Expect next

   • What if it compounded?
   • What coverage would you need at maturity?
   • Does PIK increase or decrease enterprise value?

   Reported by candidates at Apollo Global Management (Generalist, New York, 2019). Source: Wall Street Oasis.

2. 015Why are shareholder loans used in a capital structure instead of just cash equity?Credit and financingHardtechnicalNUNuveenPrivate Equity · London · 2024

   Say this

   Mainly tax and flexibility. Interest on a shareholder loan is deductible where equity dividends are not, and a loan can be repaid without the formalities and restrictions that apply to returning share capital.

   Then walk it

   1. Tax efficiency is the primary driver: interest accrued to the sponsor's loan reduces taxable profit at the operating company, creating a shield that pure equity does not.
   2. Repayment flexibility: loan principal and accrued interest can be repaid as cash allows, whereas returning share capital often requires distributable reserves and legal formalities.
   3. Ranking and structuring: shareholder loans sit above equity in the waterfall, which matters when there are multiple equity holders, minority co-investors or management shareholders with different entry points.
   4. Allocation between investors: a loan with a fixed accrual gives the sponsor a preferred return ahead of the ordinary equity, which is how management's incentive equity gets structured to only pay out above a hurdle.
   5. The constraints to name: thin capitalisation rules, interest deductibility caps, and transfer pricing rules on the rate charged. Many jurisdictions have tightened these considerably, and the EU's anti-tax-avoidance rules limit the benefit.
   6. This is standard in European buyouts and infrastructure, and less so in the US, which is worth flagging since the structure is jurisdiction-dependent.

   Where candidates lose it

   Answering only 'it is tax efficient'. The ranking and the role in allocating returns between sponsor and management equity are the structuring content, and naming thin capitalisation rules shows you know the limits.

   Expect next

   • What limits the tax benefit?
   • How does this interact with management's incentive equity?
   • Walk me through an SPV model.

   Reported by candidates at Nuveen (Private Equity, London, 2024). Source: Wall Street Oasis.

3. 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.

4. 029What is the difference between incurrence and maintenance covenants?Credit and financingHardtechnicalLazardGeneralist · Amsterdam · 2025

   Say this

   A maintenance covenant is tested every quarter regardless of what the borrower does. An incurrence covenant only bites when the borrower takes a specific action, such as raising more debt or paying a dividend.

   Then walk it

   1. Maintenance: the borrower must keep leverage below a level, or coverage above one, tested quarterly. Miss it and you are in default even if nothing else has changed. This is traditional bank loan territory.
   2. Incurrence: the test applies only when you do something, like incur additional debt, make a restricted payment or complete an acquisition. If you sit still and deteriorate, nothing happens. This is bond and covenant-lite territory.
   3. Why sponsors want incurrence: it removes the risk of a technical default during a temporary downturn, which preserves control of the situation.
   4. Why lenders want maintenance: it gives them an early seat at the table when performance deteriorates, while there is still enterprise value to negotiate over.
   5. The market has moved decisively toward covenant-lite structures in broadly syndicated loans, often with only a springing leverage covenant on the revolver tested when it is substantially drawn.
   6. The consequence worth naming: with fewer maintenance tests, lenders find out later and recoveries in default have been lower. That is one of the live concerns about the current credit cycle.

   Where candidates lose it

   Getting them the wrong way round, or not knowing the term covenant-lite. Since covenant-lite is now the market standard in large-cap leveraged finance, not knowing it signals you have not looked at real deal documents.

   Expect next

   • What is a springing covenant?
   • What does covenant-lite mean for recoveries?
   • How much headroom would you negotiate?

   Reported by candidates at Lazard (Generalist, Amsterdam, 2025). Source: Wall Street Oasis.

5. 042How does operating leverage affect debt holders versus equity holders?Credit and financingHardtechnicalOaktree Capital ManagementCredit · Los Angeles · 2024

   Say this

   High operating leverage amplifies the volatility of EBITDA, which is good for equity and bad for debt. Equity holds the upside option; debt holds a fixed claim and only experiences the extra volatility as risk.

   Then walk it

   1. Operating leverage is the share of fixed costs in the cost base. High fixed costs mean a small revenue change produces a large EBITDA change in both directions.
   2. For equity, that asymmetry is valuable. Upside flows entirely to shareholders, downside is capped at losing the equity. More volatility means a more valuable option.
   3. For debt, the payoff is capped at par plus coupon. Extra volatility adds no upside and materially increases the probability of default, so the lender is strictly worse off.
   4. This is the classic agency conflict between debt and equity: shareholders of a levered company prefer more risk than lenders would choose, and the conflict sharpens as the company approaches distress.
   5. Which is why credit documents restrict exactly these choices: covenants on leverage, restrictions on asset sales and dividends, and limits on acquisitions are all attempts to stop the equity taking risk with the lender's money.
   6. Practically for underwriting: a high-fixed-cost business supports less leverage than a variable-cost business with the same EBITDA, because the downside case is so much worse. That is why lenders price manufacturing and airlines differently from services.

   Where candidates lose it

   Describing operating leverage correctly but not linking it to the option payoffs. The debt-equity agency conflict is the intellectual content, and the practical conclusion, that fixed-cost businesses support less debt, is what shows you can underwrite.

   Expect next

   • So how much leverage would you lend to an airline?
   • What covenants would you want?
   • How does that conflict behave near distress?

   Reported by candidates at Oaktree Capital Management (Credit, Los Angeles, 2024). Source: Wall Street Oasis.

6. 058What is the difference between credit and equity investing?Credit and financingIntermediatefirst roundKKRDistressed Debt · New York · 2025Carlyle GroupCredit · New York · 2022

   Say this

   Credit has a capped upside and a fixed claim, so the job is avoiding losses. Equity has unlimited upside and a residual claim, so the job is finding the outcomes that go right. It changes what you spend your diligence on.

   Then walk it

   1. The payoff shape drives everything. A lender's best case is being repaid in full, so the analysis is entirely about the downside: what happens if this goes wrong and do I still get my money back?
   2. Equity is the opposite. Your downside is fixed at your investment, so the analysis weights the upside scenarios and the size of the opportunity.
   3. Diligence differs accordingly. A credit investor focuses on cash flow stability, asset coverage, covenant protection and the downside case. An equity investor focuses on growth, market position and the value creation plan.
   4. Seniority and control: credit sits ahead in the waterfall and gets contractual protections; equity sits last and gets governance rights. Control in credit is negative, meaning the right to block, while equity control is positive, the right to direct.
   5. Return profile: credit returns are contractual and mostly known at entry, typically high single to low double digits for private credit. Equity returns are uncertain and target 20 percent plus.
   6. And the crossover that makes distressed interesting: in a restructuring the fulcrum creditor converts into the equity, so a credit investor becomes an owner. That is why the two skill sets overlap at the distressed end.

   Where candidates lose it

   Describing seniority only. The examinable insight is that the asymmetric payoff changes what you diligence and how you think, and the distressed crossover is what makes the answer sound like someone who understands both.

   Expect next

   • Which would you rather do and why?
   • How does that change what you look at in diligence?
   • What is the fulcrum security?

   Reported by candidates at KKR (Distressed Debt, New York, 2025); Carlyle Group (Credit, New York, 2022). Source: Wall Street Oasis.

7. 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.

8. 074How would leverage change if the business were cyclical rather than stable?Credit and financingIntermediatetechnicalNUNuveenLeveraged Finance · Chicago · 2019

   Say this

   Materially lower, and sized against trough EBITDA rather than current EBITDA. A cyclical business at five times peak earnings can be at nine times in a downturn without anything else changing.

   Then walk it

   1. The arithmetic: if EBITDA falls 40 percent in a downturn, leverage of five times at the peak becomes over eight times at the trough purely through the denominator. Covenants set against peak earnings breach automatically.
   2. So you underwrite to the trough: what did EBITDA do in the last downturn, and can the structure service interest at that level with headroom?
   3. Practically that might mean three times for a cyclical where a stable business supports five and a half, plus a wider covenant cushion of 30 to 35 percent rather than the standard 25 to 30.
   4. You also want more liquidity: a larger undrawn revolver, more cash on the balance sheet, and lower mandatory amortisation so the fixed cash burden is smaller in a bad year.
   5. The cost structure interacts with this. A cyclical business with high fixed costs is far worse than one with variable costs, because EBITDA falls faster than revenue.
   6. And the exit risk compounds it: cyclicals trade at low multiples at the peak and you cannot sell at the trough, so the hold period is less controllable. That is a real reason sponsors underweight deep cyclicals despite the apparent value.

   Where candidates lose it

   Answering with a lower multiple but no reason. The mechanism is that leverage is a ratio and the denominator collapses, so covenants set against current EBITDA breach without any operational failure. Say that explicitly.

   Expect next

   • What covenant cushion would you want?
   • How do you find the trough EBITDA?
   • How does that change the exit plan?

   Reported by candidates at Nuveen (Leveraged Finance, Chicago, 2019). Source: Wall Street Oasis.

9. 075What happens if a portfolio company breaches a covenant?Credit and financingHardsuperdayRestructuringPrivate credit

   Say this

   It is a technical default, which gives lenders the right to accelerate but rarely leads to them doing so. In practice it starts a negotiation, and the sponsor's leverage in that negotiation depends on whether it is willing to inject equity.

   Then walk it

   1. First, the legal position: a breach gives lenders the right to call the debt. They almost never do, because accelerating a business that is still operating usually destroys value for them too.
   2. So it becomes a negotiation. The standard outcomes are a waiver for one testing period, an amendment resetting the covenant levels, or an amend-and-extend that also pushes the maturity.
   3. The price of a waiver: an amendment fee, a higher margin, tighter covenants going forward, and often additional information rights or a requirement for an independent business review.
   4. The equity cure is the key sponsor tool. Most credit agreements allow the sponsor to inject equity that is deemed to count as EBITDA for covenant purposes, curing the breach. There are limits on how many times it can be used and in consecutive periods.
   5. The sponsor's decision is whether the business is worth more equity. If the equity is already worth nothing, the rational move is to hand the keys over and let lenders take control, and everyone in the negotiation knows that.
   6. The behaviour that matters most is timing: tell lenders early, before the test date, with a plan. A sponsor that surprises its lenders gets much worse terms than one that pre-negotiates.

   Where candidates lose it

   Assuming a breach means immediate enforcement. It almost never does. The examinable content is the waiver-or-amend negotiation, the equity cure mechanism, and the fact that the sponsor's willingness to put in more money is what determines the outcome.

   Expect next

   • What is an equity cure and what are its limits?
   • When would you hand the keys over?
   • How does covenant-lite change this?

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.