Private Credit Technical Questions: Worked Interview Guide

Use lender order, not formula order

When an interviewer gives you a company, do not begin by calculating every ratio you remember. Work in the order a lender loses money.

1. Understand how the company earns revenue and cash.
2. Test whether EBITDA reflects real, repeatable earnings.
3. Calculate cash available for debt service.
4. Compare that cash with interest, amortisation, and other fixed charges.
5. Stress the assumptions that matter most.
6. Assess covenants, security, and recovery.
7. Decide whether the yield compensates for the risk.

This order keeps your answer commercial. It also helps when information is missing because you can state what you need next and why it could change the decision.

Question 1: How do you assess EBITDA quality?

Reported EBITDA is a starting point, not cash available to lenders. Ask how much is recurring, how concentrated the customers are, and whether management has added back costs that will continue.

Common adjustments include restructuring charges, one-off professional fees, projected cost savings, and acquisition synergies. Some may be reasonable. The danger is accepting every adjustment and underwriting a debt load against earnings that have not arrived.

A strong interview answer might say:

I would bridge reported EBITDA to a lender-adjusted figure. I would remove speculative synergies, review recurring restructuring costs, and test customer concentration. Then I would compare EBITDA with operating cash flow to see whether working capital, capital expenditure, or capitalised costs are weakening conversion.

If reported EBITDA is $50 million but recurring add-backs contribute $8 million, you may underwrite closer to $42 million. At five times reported leverage, debt is $250 million. On lender-adjusted EBITDA, leverage is almost six times. That difference can change the deal.

Question 2: Walk through leverage and coverage

Gross leverage is total debt divided by EBITDA. Net leverage subtracts cash, but lenders should be careful about treating every dollar of cash as available. Some cash is needed to operate the business or trapped in another jurisdiction.

Interest coverage is often EBITDA divided by cash interest. A cash-flow version can be more useful:

Cash available for debt service = EBITDA - cash taxes - capital expenditure - working-capital needs - other fixed cash costs

Suppose a business has:

Cash available before debt service is $27 million. Total interest and amortisation are $14 million, leaving $13 million of headroom. That looks comfortable until you test a downside.

If EBITDA falls 20 percent to $32 million while other cash costs remain similar, cash available drops to $19 million. Coverage of interest and amortisation falls from 1.93 times to 1.36 times. The company can still pay, but there is much less room for another miss.

Question 3: What happens when rates rise?

The answer depends on how much debt is floating-rate, the benchmark floor, the spread, and whether the borrower has hedged. Do not say only that interest expense rises.

If $200 million of debt is floating and the benchmark rises by two percentage points, annual cash interest increases by roughly $4 million before hedging. In the example above, base-case headroom falls from $13 million to $9 million. In the downside, it falls from $5 million to $1 million.

That second result matters. The company still showed positive coverage before the rate shock, but now one small miss could create a liquidity problem. You might require lower leverage, more hedging, additional equity, or a tighter covenant.

Question 4: Which covenants would you require?

A covenant should warn you before value is lost, not simply produce a legal event after the borrower has already run out of cash.

Maintenance leverage covenants test leverage regularly. Interest coverage covenants protect debt service. Liquidity covenants require a minimum cash or revolver level. Negative covenants can limit additional debt, acquisitions, dividends, and asset sales.

The right package depends on the risk. A cyclical company may need more headroom and an earlier warning. A business with acquisition risk may need controls around incremental debt and permitted acquisitions. A company with weak cash conversion may need a liquidity test.

When asked for a covenant level, explain the relationship to the downside case. If base leverage is 5.0 times and your reasonable downside reaches 5.8 times, a covenant at 5.1 times would leave little operating room. A test at 6.0 times may provide warning without creating an immediate breach. The exact answer depends on the case.

Question 5: Explain a unitranche structure

A unitranche presents one loan to the borrower, combining economics that might otherwise sit in separate senior and junior facilities. It can make execution faster and documentation simpler.

Behind the borrower-facing loan, lenders may use an agreement among lenders to divide risk. A first-out lender is paid first and usually earns a lower return. A last-out lender takes more risk and earns more.

Interviewers may ask why a sponsor chooses unitranche. The answer is not only convenience. A direct lender can offer speed, certainty, a larger hold, and a flexible covenant package. The borrower pays for those benefits through pricing and terms.

You should also name the risk. Concentrating the debt with fewer lenders can simplify negotiation, but the last-out capital has greater loss exposure. The blended coupon can hide meaningful differences in internal priority.

Question 6: How do OID and fees affect lender return?

Original issue discount means the lender funds less than the face amount but is repaid at par if the loan performs. A loan issued at 98 gives the borrower $98 for every $100 of principal while creating two points of discount for the lender.

The lender's return can include:

• Cash interest
• Benchmark and spread
• OID
• Upfront or arrangement fees
• Commitment fees
• Prepayment protection
• Exit fees or other contractual economics

Do not compare two loans on coupon alone. A lower coupon with strong fees and prepayment protection may produce a better return than a higher coupon refinanced quickly.

The exact yield calculation can become detailed. In an interview, first explain the direction correctly: more discount, fees, and time outstanding generally increase lender return, while early prepayment can reduce expected economics unless protection applies.

Question 7: Build a downside case

A useful downside changes the assumptions that actually drive the business. Cutting revenue by ten percent and leaving every margin unchanged is often too mechanical.

For a software company, test churn, slower new sales, and delayed cost reductions. For a distributor, test volume, price, and working-capital investment. For an industrial company, test utilisation, input costs, and maintenance capital expenditure.

Then follow the consequences:

1. Revenue declines or grows more slowly.
2. EBITDA margin may compress because costs are partly fixed.
3. Working capital or capital expenditure may consume cash.
4. Interest expense may remain fixed or rise.
5. Liquidity and covenant headroom tighten.
6. Refinancing becomes harder.

Your recommendation should reflect the result. If the company breaches a covenant but remains liquid, you may need an amendment and additional sponsor equity. If it runs out of cash, the structure needs to change before funding.

Question 8: How do you think about recovery?

Recovery asks what lenders could receive if the company cannot refinance or repay as planned. Start with enterprise value under stress, then subtract claims that rank ahead of your debt and consider enforcement costs.

Asset value matters, but so do documentation and jurisdiction. A secured lender with a first claim on valuable assets may recover more than an unsecured lender. A software company may have few tangible assets, yet recurring contracts and a saleable business can still support value.

Avoid applying a healthy-market multiple to distressed EBITDA without adjustment. Stress both earnings and the valuation multiple. Also consider whether the business can be sold as a going concern or whether customers and employees would leave during a restructuring.

Turn the analysis into a lending decision

End a case with five points:

1. What you like about the business
2. The main risk to repayment
3. Base and downside debt service
4. The protection you require
5. Your conditional recommendation

For example:

I would support the loan at lower opening leverage and with a maintenance covenant. The recurring revenue supports the base case, but customer concentration makes the downside too tight at the proposed debt level. I would require more sponsor equity, minimum liquidity, and reporting on the largest contracts.

That answer is stronger than listing leverage and coverage because it turns analysis into a decision.

Finbound can help you organise this preparation around live applications. Track the fund and interview stage, and the study priority algorithm can bring relevant accounting and credit work forward as the technical round approaches. Start for free when you want the process in one place.

What to do after reading this

Facing a private credit technical round? Take one public company, calculate cash available for debt service, and build a downside that changes the business rather than only the spreadsheet.

Then compare your recommendation with the wider private credit interview guide and private credit vs private equity guide.