Restructuring Interview Questions: The Complete RX Guide

Restructuring interviews are a different animal from generalist M&A recruiting. The candidates are self-selecting — people drawn to distressed debt, bankruptcy law, and messy capital structures — and the interviewers at RX-focused shops and elite boutique restructuring groups know their candidates chose this. That means the technical bar is higher and more specialized: you will be asked about the bankruptcy process, creditor priorities, and distressed valuation in ways an M&A interview never touches.

The seat itself explains the questions. RX bankers advise either debtors (the distressed company) or creditors (lenders and bondholders fighting over recovery), and the work is equal parts finance and negotiation leverage. Interviewers want to see that you understand value doesn't disappear in distress — it gets reallocated down a priority waterfall — and that you can reason about who gets what and why. If you can think in waterfalls, you can handle most of what they throw at you.

What RX interviewers actually test

Beyond the standard accounting and valuation technicals (which you still need — RX interviews frequently open with them), restructuring interviewers test whether you understand the mechanics of distress. Can you explain why a company files for bankruptcy? Can you rank a capital structure and trace where value runs out? Do you know the difference between a liquidity problem and a solvency problem — a company that is temporarily short of cash versus one whose debts exceed what the business is worth?

They also test motivation harder than most groups. 'Why restructuring instead of M&A?' is a real screen, because RX is countercyclical, intellectually intense, and involves adversarial situations. Weak answers ('it's interesting') get punished. Strong answers reference the specific appeal: creditor-versus-creditor dynamics, the legal-financial overlap, working both sides of the table, and busy deal flow precisely when the rest of the Street is quiet.

• Standard accounting and valuation, often with a distressed twist
• Capital structure seniority and waterfall reasoning
• Bankruptcy process mechanics: Chapter 11, Chapter 7, 363 sales, DIP financing
• Liquidity versus solvency diagnosis
• A convincing, specific 'why RX' story

Core concepts: the capital structure and the waterfall

Everything in restructuring starts with priority. In a typical US capital structure, from most senior to most junior: secured debt (first lien, then second lien, each secured by collateral), senior unsecured debt, subordinated debt, preferred equity, and common equity. In a bankruptcy waterfall, value is distributed down this ladder under the absolute priority rule: a senior class must be paid in full before a junior class recovers anything, though consensual plans can and often do deviate from strict priority as a negotiated matter.

The fulcrum security is the concept interviewers love most. It is the class in the capital structure where the value runs out — the most senior claim that is not fully covered by enterprise value. Because there isn't enough value to pay it in cash or reinstated debt, the fulcrum class typically converts into the equity of the reorganized company, which is why distressed investors fight to own it. Quick illustration: if a company is worth 500 and has 300 of first lien debt and 400 of unsecured notes, the first lien is covered in full, the unsecured notes recover 200 of their 400 claim (the fulcrum, likely equitized), and old equity is wiped out.

Secured lenders whose collateral is worth less than their claim get split into a secured claim up to the collateral value and an unsecured deficiency claim for the remainder — a detail that impresses interviewers because it changes waterfall math.

Core concepts: process mechanics

Know the difference between Chapter 11 and Chapter 7 cold. Chapter 11 is reorganization: the company keeps operating as a 'debtor in possession,' benefits from an automatic stay that halts creditor collection, and negotiates a plan of reorganization that creditors vote on. Under the US Bankruptcy Code, a class accepts a plan when holders of at least two-thirds in dollar amount and more than half in number of voting claims approve. A court can also confirm a plan over a dissenting class — a cramdown — if statutory tests are met. Chapter 7 is liquidation: a trustee sells the assets and distributes proceeds down the waterfall; the business does not survive.

DIP (debtor-in-possession) financing is new money lent to the company in bankruptcy, and lenders provide it because DIP loans typically carry superpriority status and strong collateral protections, putting them effectively at the top of the structure. A 363 sale is a sale of assets through the bankruptcy court, free and clear of existing liens, often run as an auction with an initial 'stalking horse' bidder setting the floor. Out-of-court alternatives — amend-and-extend, exchange offers, new capital — are faster and cheaper but require voluntary participation, so they struggle with holdout creditors; the ability of an in-court process to bind holdouts through class voting is exactly why companies file.

For valuation, RX uses the same core toolkit — comps, precedents, DCF — but the outputs matter differently: the reorganization value gets compared against the claims waterfall to determine recoveries, and a liquidation analysis serves as the floor, since a Chapter 11 plan must generally give each dissenting creditor at least what Chapter 7 liquidation would ('best interests' test).

Classic question types and answer frameworks

RX questions cluster into families. Waterfall questions ('company worth X with this debt stack — who gets what, and what's the fulcrum?') want you to walk down the priority ladder methodically, filling each class before moving on. Diagnosis questions ('a company's revenue is fine but it's about to default — what's going on?') want the liquidity-versus-solvency distinction, maturity walls, covenant breaches, and rising rates on floating-rate debt as candidate causes. Process questions ('why would a company choose Chapter 11 over an out-of-court deal?') want the holdout logic, the automatic stay, the ability to reject burdensome contracts and leases, and access to DIP financing — weighed against cost, time, and stigma.

Advisory-perspective questions ('you advise the second lien holders — what do you want?') test whether you can map incentives: senior creditors near full recovery want speed and low risk; fulcrum holders want a higher valuation estimate (more value reaches them) and often want equity; out-of-the-money classes want option value, delay, and litigation leverage. If you consistently ask yourself 'where does this class sit relative to the fulcrum?', the right argument usually falls out. The sample questions appended below this guide show the actual phrasings banks use.

Common mistakes

The classic error is treating equity as having value in a clearly insolvent company — remember that in a strict waterfall, equity recovers only after every debt class is paid in full. Another is confusing liquidity and solvency, or asserting that filing for bankruptcy means the business is worthless; Chapter 11 exists precisely because many distressed businesses are worth more alive than liquidated.

Candidates also routinely forget that valuation drives everything in RX and is therefore contested: junior creditors argue for higher enterprise value, senior creditors for lower, because the number determines where the fulcrum sits. Presenting valuation as an objective fact rather than a negotiating battleground misses the entire point of the job. Finally, do not walk in without a 'why RX' answer that survives follow-ups, and do not name-drop distressed situations you cannot discuss in detail.

• Giving equity recovery in an insolvent waterfall
• Confusing a liquidity crunch with insolvency
• Ignoring deficiency claims when collateral is worth less than the secured claim
• Treating valuation as objective rather than the central negotiation
• A generic 'why restructuring' answer

How to prepare

RX prep is standard IB prep plus a specialized layer, so sequence it. Nail the general accounting and valuation technicals first — RX interviewers still ask them, and fumbling a basic DCF question ends the interview faster than missing a bankruptcy nuance. Then build the RX layer deliberately.

Because waterfall logic only becomes fluent through repetition, drill it actively rather than re-reading notes. WACC Buddy's restructuring deck runs you through waterfall, fulcrum, and process questions with spaced repetition until ranking a capital structure feels mechanical.

1. 01Lock down core accounting, valuation, and EV/equity value technicals first
2. 02Memorize the priority ladder and practice waterfall math with pen and paper until it's automatic
3. 03Learn the Chapter 11 toolkit: automatic stay, DIP, 363 sales, plan voting, cramdown, and the out-of-court alternatives
4. 04Follow one or two current distressed situations well enough to discuss the capital structure and each class's incentives
5. 05Prepare a specific 'why RX' story and stress-test it with mock follow-ups

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